If you’re reading this on Outlook, most of the graphs won’t show. I’d recommend you read it online

📕 Reads of the Week

Market Updates

1. Coller Capital: Why Debt Levels Matter for Secondary Underwriting.

   • Coller analysed 1,789 PE exits to find out.

   • Loss rates rise to more than 30% when leverage increases more than 6x.

     

2. FT: Private credit won’t spark the next financial crisis. Link

3. Goldman Sachs: Taking the long term view on private credit. Link

4. Pemberton: Insights into European Private Credit. Link

5. Ares: Secondaries Take the Spotlight. Link

   

Partnership Updates

• KKR and Capital Group are launching a public–private credit fund in Asia later this year. Link

• MUFG is looking for partners to share risk. The bank ‌is aiming to limit funding through its own balance sheet so as not to bear the risk of financing deals as a wave of leveraged buyouts sweeps Japanese ​firms. Link

Manager Updates

• The Big Picture: Outlook from the Co-CEOs at Oaktree Conference 2026. Link

• Saba Capital to raise $1 billion to buy souring private credit funds. Link

• Pimco has lent more than $10 billion to state-backed and government borrowers in the Gulf, since the conflict began on Feb. 28. Link

• Lenders taking the keys on Medallia. Link

BDC / Interval Fund Updates

• Private credit BDCs trade at the deepest NAV discounts in over five years. The median listed BDC traded at a discount of 26% to NAV, the steepest gap since October 2020. Link

• JunkBondInvestor.Not all BDC debt is created equal.

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Sona AM: An Honest Assessment

Sona Asset Management’s honest assessment of private credit is well worth a read. I’ve pulled out a few of my favourite lines below.

👉 Read The Full Assessment Here.

Public scrutiny of private credit is now in full force and has almost certainly never been greater. Negative headlines are dominating the narrative: heavy exposure to software companies, redemptions and gating, criticism of portfolio marks, and banks marking down collateral posted by private credit firms.

SEMI-LIQUID STRUCTURES EXIST FOR A REASON

The creation of semi-liquid private credit structures was an innovation which expanded the market. There is no ambiguity as investors allocate to these vehicles with full knowledge of the terms - both on the way in and, critically, on the way out.

None of this makes the current moment comfortable for managers. Each redemption cap risks reinforcing a negative sentiment spiral at a time when the industry is already under scrutiny.

There are also legitimate questions surrounding the handful of managers who have chosen to honour redemptions above the standard 5% threshold - arguably rewarding first-mover behaviour.

Private credit is illiquid. That is known, priced, and agreed upon at the point of commitment. Sudden, large-scale withdrawals would compromise a fund's stability and potentially require premature liquidation of illiquid assets at a loss. Redemption gates are designed to prevent exactly that. They exist to protect the investors who stay just as much as they manage the investors who redeem.

AI AND PRIVATE CREDIT - LIMITED UPDSIDE, REAL DOWNSIDE

Private credit has a serious concentration problem in precisely the sectors AI is targeting most aggressively. Software is the clearest example.

These businesses were seen as predictable cash flow machines, and lenders piled in accordingly. Valuations reflected that enthusiasm, with median deal multiples reaching more than 15x annualised recurring revenue in 2026, layered with substantial debt. Those multiples have since collapsed to around 5x.

Estimates put average software exposure north of 20% of assets, with some funds potentially approaching 40%.

Credit investing is inherently asymmetric. Like equities, the worst outcome is a total loss. Unlike equities, the best outcome is par – investors get their money back plus coupon income. There is no participation in the upside

AN INDUSTRY BUILT TO ORIGINATE, NOT MANAGE.

The private credit industry was designed to originate. Its fee structures, staffing models, GP incentives, and fundraising narratives are all oriented around deployment. The implicit assumption embedded in the business model is that the most important decisions are made at origination and that if underwriting is done correctly, monitoring and management can be largely mechanical.

We believe this assumption is wrong. As a result, many private credit portfolios are not constructed; rather, they emerge as the accumulation of individual deployments.

A genuine portfolio management culture requires continuous reassessment of underlying assumptions. It means regularly asking whether the thesis on which an investment was underwritten remains valid; whether the competitive position of the borrower has changed; and whether covenant levels still reflect the underlying risk. It requires the willingness to mark assets to economic reality, to initiate difficult conversations with sponsors, and - crucially – the willingness and ability to walk away from an investment when circumstances call for it. This doesn’t apply to all managers.

However, there is clear evidence that portfolio management standards have deteriorated in parts of the market.

Why would a well-managed portfolio manager tolerate 40–50% exposure to a single sector – software – that was already showing signs of strain and emerging AI-driven competitive pressure? The answer often lies in incentive structures: managers who deployed capital most aggressively were rewarded with the highest fees and the largest subsequent fundraises.

This contrasts with public markets, where we would argue there is far greater discipline in recognising and exiting a flawed underwriting decision. As the lines between public and private credit increasingly blur, the managers who succeed will be those able not only to originate investments, but also to construct portfolios and actively manage risk - including exiting bad positions when necessary. Experience, or the lack of it, reinforces this problem.

Private credit has long been perceived as operating in a “golden age”, but cycles eventually turn. Managing a concentrated, illiquid portfolio through a credit cycle requires a fundamentally different skill set. The industry has scaled its origination infrastructure dramatically, and portfolio management capabilities, in many cases, have not kept pace.

A FLOOD OF CAPITAL HAS COMPRESSED SPREADS

The most transformative structural development in private credit over the past five years has been the influx of insurance capital, and the implications for the risk-return profile of the asset class have been profound.

According to Barclays, US life insurers’ overall general account investments are $6.1tn. They estimate that the sector’s allocation to private letter ratings – the best proxy for private credit – is about 10% (this includes some rated middle market CLOs and other similar exposures in the alternatives bucket).

Notably, they suggest that private credit assets in the US life insurance industry grew 21% in 2025, about twice the rate of growth of the overall general account.

The problem is not that insurers invest in private credit. Rather, it’s the capital dynamics they introduce. Insurance capital faces permanent deployment pressure - a liability structure that must continuously generate matching assets. This dynamic closely resembles the GP deployment incentive problem described earlier but operates at a scale that dwarfs any individual fund.

The result has been persistent spread compression precisely at a point in the cycle when spreads should be widening to reflect higher risk. Insurance capital has lowered the cost of private credit financing for borrowers at a time when credit quality, documentation standards, and macro uncertainty all point to the need for a greater risk premium.

👉 Read Sona’s Assessment here.

💰Fundraising News

Carlyle reportedly raisied $1.5 billion for its Asset-Backed Income Fund. More here

Ashmore, the London-based specialist emerging markets manager, is working with the European Bank for Reconstruction and Development to develop a $500 million private debt strategy. More here

Founders First Capital Partners, a US early-stage lender, announced a first close of $12 million for Change Catalyst Fund II. The fund invests in growing service-based businesses, generally with $1–10 million in revenue with commercial and government customers. While operating nationally, the fund emphasizes key regions of excellence including California, Illinois, Minnesota, Pennsylvania, New Jersey, New York, and the Washington, D.C. metro area. More here

This newsletter is for educational and entertainment purposes only. It should not be taken as investment advice.

If you’re reading this on Outlook, most of the graphs won’t show. I’d recommend you read it online

📕 Reads of the Week

Market Updates

• Golub: U.S. Middle Market Remained Resilient in Q1 2026. Link

• Brookfield: Why real asset lending is built for today’s environment. Link

Real Estate Credit Delinquencies Well Off the Highs

Manager Updates

• Nest, the largest UK workplace pension scheme, awarded Crescent Capital £450 million as part of a new direct lending mandate. Crescent will originate senior secured loans directly to US middle market companies. Nest’s plans to allocate up to 30% of its AUM to private markets by 2030. Link

• Blue Owl recorded its strongest share price performance since late 2022. The firm’s stock climbed roughly 17% over two days. Link

• Sycamore Tree Capital Launches Credit Secondaries Investment Platform. Link

“Soccer” Special

• Eagle Point provides a $50 million “asset-backed” loan to Sports Illustrated secured against World Cup tickets. The loan has a 100% LTV and targets mid-teens returns.

• Analysis of Ares Management’s $500 million investment in Chelsea Football Club.

  • The element that poses the greatest existential risk to the Chelsea Football Club ownership structure is its PIK mechanism.

  • At an annual compounding rate of roughly 12% to 13%, the initial £410.2 million principal will double in approximately six years.

  • If no cash repayments are initiated before the August 2033 maturity date, the total cost required to service, satisfy, and retire the preferred equity agreement will vastly exceed £850 million.

  • Read the full analysis here

Partnership Updates

• Sumitomo Mitsui Financial Group and Nippon Life Insurance are in discussions toward launching a $3 billion private credit partnership. Link

BDC / Interval Fund Updates

NAV BDC sponsors have returned more than $7.4 billion to investors in Q1

• Blue Owl Capital Corporation II declared a Q2 distribution of 5% of NAV. Following this, OBDC II will have returned 35% of NAV since March 2025. Link

• Goldman Sachs Nontraded BDC raised a $750 million bond. Link

• JPMorgan: Today’s elevated redemption requests appear to be driven more by sentiment than a broad-based deterioration in market fundamentals because credit fundamentals remain resilient. Link

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Ares: Let’s talk about the F word.

Ares in the Gaps is out, and as always, it’s worth reading in full (Link).

My highlight is the section on fraud, below with a few excerpts.

Recent reports of fraud in the market have left many with the impression that fraud can happen anytime, anywhere, to anyone...

And there’s precious little you can do about it.

That is just not true.

Fraud in financial markets is nothing new, neither are the means by which fraud is carried out. Fraud is a crime of opportunity. In that sense, fraud is not much different from home burglary, and neither are the perpetrators. Vulnerabilities and gaps in security are identified, often cultivated, and ultimately exploited.

Most victims don’t realize they are as vulnerable as they are.

Mitigating fraud is largely about minimizing both the means and opportunity.

Because one can’t fully eliminate the risk, it’s also about detecting it as quickly as possible. It’s about

• Locking the front door,

• Installing security cameras and alarm systems

• Placing a trained guard dog in the house for good measure.

It’s also about avoiding the neighbourhoods known for such crimes.

There are certain sectors in the ABF market that almost inherently create both means and opportunity for would-be fraudsters. Trade finance, high-rate consumer lending, life settlements and many corners within litigation finance. These sectors have intrinsic features that inhibit or prevent investors from mitigating fraud risk.

Consequently, they tend to be bad neighborhoods.

💰Fundraising News

Adams Street Partners, a Chicago-based manager, closed its $7.5 billion Private Credit III fund. The fund provides senior financing to sponsor-backed middle-market companies. PC III’s existing portfolio has a loan-to-value ratio below 40% and an average debt multiple of ~5x. More here

StepStone closed a $3.1 billion structured solutions vehicle for private market secondaries. Ares Management Alternative Credit will serve as the primary capital provider to the vehicle, with Barings Portfolio Finance providing a substantial portion of the vehicle's rated financing. More here

Comvest Partners, a Florida-based manager, rasied $2.6 billion for its Credit Partners VII. The strategy provides senior secured loans to US mid-market companies, with the ability to do transactions as large as $300 million. The invests in sponsored and non-sponsored businesses within target industries that include healthcare services, financial services, speciality finance, business and technology services, consumer and retail, and industrials. More here and here.

CapitaLand, a Singapore-based manager, closed its $320 million Asia Pacific Credit Program II. The fund invests in senior secured real estate credit across Asia Pacific. More here

This newsletter is for educational and entertainment purposes only. It should not be taken as investment advice.

If you’re reading this on Outlook, most of the graphs won’t show. I’d recommend you read it online

📕 Reads of the Week

Fundraising Updates

Last week’s post was tough reading but thankfully April has roared back with managers raising nearly $50 billion in first two weeks. For context, there was only $89 billion raised in the whole of Q1. Below with summary, see the full details here.

Manager Updates

• 🎧Promote Giving - A New Model for Performance-Driven Giving. Link

• Vista Credit is launching a Tactical Credit Fund to focus on software businesses that could withstand AI-driven pressure. Link

Market Updates

• 🎧Alan Waxman, CEO of Sixth Street, on the History and Future of Private Capital. Link

• Blackstone: Today's market looks nothing like 2008

  • Banks then were levered 25 to 40 times, primarily funded by short term deposits and commercial paper.

  • The underlying assets were 90%+ loan-to-value and layered on top were highly complex derivatives that obscured the risk.

  • This is nothing like what is happening today.

  • Business development companies typically operate with less than 1x leverage, lend at roughly 40% loan-to-value to corporate borrowers, and use structures that don’t rely on deposits or overnight capital.

  • Read more here

Partnership Updates

• King Street, the New York-based manager, signed an MoU for PIF to be an anchor investor in a new private credit fund focused on Saudi Arabia and the wider MENA region. Link

• Tikehau, the Paris-based alt manager, announced a joint venture with Amova Asset Management, one of Asia’s largest asset managers. Tikehau Amova Investment Management will be focused on developing Asia-focused private assets investment strategies for global distribution. The joint venture will include offering private credit focused on Asia. Link

BDC / Interval Fund Updates

• Moody's Reaffirms Blue Owl’s OCIC rating but changes outlook to negative.

  • The change in outlook to negative is in response to OCIC’s significantly higher-than-peer redemption requests in the first quarter.

  • OCIC reported net debt-to-equity leverage of 0.8x, which is lower than the peer median and $11 billion in cash, revolver capacity and Level 2 investments, which together could more than cover the full first-quarter redemption request.

  • In addition, OCIC has relatively limited unsecured debt maturities coming due over the next 12 months, consisting of $350 million in senior unsecured notes due in September and $500 million due in February 2027.

  • Deterioration in leverage or liquidity could weaken the company’s relative strengths at its Baa2 rating, which is at the top of the BDC peer group.

  • More here

The Rise of the Factory Model

Alan Waxman, co-founder and CEO of Sixth Street, appeared on Invest Like the Best. Below are my key highlights.

👉Listen to the interview here.

Everything that is covered in the media is just talking about the symptoms and not actually getting to the root cause.

The SMA was a symptom.

The wealth system is a symptom.

When you think about some of the stuff you see in stuck private assets, where there’s so many assets around the world in private real estate, private infrastructure, private equity, that literally were companies or assets that were bought in post-COVID, in sort of ‘20, ‘21, early ‘22 – paid way too much. They’re stuck assets.

All that stuff is symptoms.

The root cause of this is the change of behavior patterns of the factory model. That’s the root cause.

The Rise of the Factory Model

So the way that we define the factory model in our industry is there’s two parts to it and then there’s an output.

1. First part is the industrialization of the fundraising process. Say liability gathering. Literally raising as much capital as you possibly can, as fast as you can. So that’s the industrialization of the liability side of the fundraising side. That comes first.

2. And then what comes second is then, as a result of that, the industrialization of the asset side. So think about investing. If you’re on an investment team and all of a sudden your firm has a lot of money to invest, and it’s just sitting there and maybe there’s a timestamp on it. All of a sudden your behavior has to start to change, because you have to deploy that money much quicker.

And what’s the best way to raise a lot of capital quickly?

Make it very simple.

Make it very narrow, because if it’s wide, that’s too hard to explain.

So you want to make it as narrow as possible and you’re also willing to take – let’s say, make concessions on the type of capital you raise. Meaning maybe it’s got a term where they can ask for your money back.

When people hear this, they’re going to think I’m only talking about the bigger firms

But it filtered down to mid-sized firms, smaller firms for a whole bunch of reasons, but this whole factory model behavior started to reveal itself in 2018…

The story of the factory model starts to correspond with FRE multiples. Our industry started trading between 10 to 15 times FRE in early 2010s. In 2018, when all this started, it stepped up to – call it 15 to 20 times, obviously depends on the comp set. Before this current moment, we’re at 25 to 30 times plus. That’s where it is

You know when you see it.

You can see it in the underwriting. We're in a bunch of different asset classes. You can see it, particularly if you're a fixed income investor or credit investor because you have capped upside. There's terms you just don't give. A lot of those terms have been given.

You should not do those terms, because it’s all good when you’re in a procyclical environment. But if you have capped upside and you’re earning a 10% return and all the collateral that your 10% is based on can literally be taken out of your collateral package overnight.

Or for that 10% return, you can be levered up because let’s say there’s an AI disruption and some software company needs to reposition their business and they can basically lever you up. So you go from 50% loan to value to 120% loan to value.

Those are just things that you shouldn’t do for a 10% return.

There’s No Such Thing as Semi-Liquid

Some of the factory models that are out there have raised capital from the wealth channel in irresponsible ways. So first of all, in general, you’re taking an illiquid asset and you’re giving investors an ability to get their money back quarterly. They say semi-liquid. There’s no semi-liquid, okay, there’s no such thing as semi-liquid. Anyone that’s an investor that’s been through a bunch of cycles – there’s liquid, and then there’s illiquid.

Because again, going back to the history of the wealth channel or individuals or retail, the one thing we know, it’s very procyclical. We’re in a procyclical environment. It’s easy to raise money. And when you’re not, and when there’s problems or dislocation like there is today, they want their money back. So you basically had mismatching of illiquid assets and liabilities. So that’s one part of it.

The second thing is that they would raise these very narrow – what I mean by narrow is it’s just direct lending. So it’s not like you can invest in direct lending and real estate and infrastructure or in asset-based finance. No, no, it’s just very narrow. Just direct lending or just asset-based finance or just this strategy. That’s a narrow strategy.

And maybe that’s okay if you raise the right amount of capital. But if you raise an unlimited amount of capital where your investing is dictated, not on good investments in the market, but basically dictated by how much money you can raise. There’s never a governor on how much money to raise.

And the thing about these wealth vehicles, when they raise it, they have to invest it right away. We call it inflow investing. They have to invest it right away. So they raise as much money as they can, and if they don’t invest it right away, it dilutes the return of that vehicle.

The best answer is a market mechanism, like you have with institutional investors.

If you do irresponsible things or you're not a good investor, if you change your business model, they're going to punish you by not giving you money for your next fund.

What’s your clarity of purpose?

Does that stay consistent over time?

Is your clarity of purpose to raise a bunch of liabilities or is it to drive good returns for investors?

Maybe it’s both. Maybe you can do that. Maybe some firms can do that.

But, what is your clarity of purpose is something we talk a lot about at Sixth Street, is that if you look at all the great companies that have been around for a long time, they got one thing right. They never forgot what their purpose was, which is to serve their customers.

It’s enticing to raise a bunch of money. It’s enticing once you raise it to invest a lot of money. That doesn’t mean that you have to do it.

Sixth Street, we’re a multi-strategy private capital firm. We do a bunch of things. One of the things we do is direct lending. We have one of the best track records. We’ve been here longer than – in direct lending, I started the direct lending business in 2001 when there was only two of us.

So we’ve watched this and we could have gone to the wealth channel and raised all the same vehicles because of our track record. And we have – you know how many dollars of perpetual private BDCs we have? Exactly zero. It’s not that we couldn’t have. We just didn’t think it was the right thing and we didn’t think it was consistent with our clarity of purpose, and that’s why we didn’t do it.

It’s easy to get FOMO.

I just think you just got to block out that noise and it always comes back to first principles of clarity of purpose. What are your values? And if you stay consistent with that, judging by the best companies that have been around for a long time, that’s your pathway to building a great company that’s going to be here for a long time, not short-termism.

👉Listen to the interview here

Four Reasons Why Howard Thinks Oaktree will Outperform

Superior investing doesn’t result from omniscience and perfect decision making, but rather from decisions that are better than those made by others.

1. We’ve been investors in high yield bonds and broadly syndicated loans since their inception decades ago, but we never went overboard in private credit. As I mentioned a year ago in my memo, Gimme Credit, whereas for a few years the most popular question has been “can we talk about private credit?” my rejoinder has been “can we talk about credit?” We insisted there was a place in portfolios for both private credit and liquid credit.

2. We never pursued direct lending to the same extent as others. At the beginning of its existence in the early 2010s, we thought the returns from direct lending, while high in relative terms, were low in the absolute. And later, we thought the superiority in pricing and terms had been competed away by the newly arrived managers and capital, rendering it average in attractiveness, not exceptional. Private credit represents well under half of Oaktree’s performing credit assets, and direct lending represents less than half of our private credit book. Thus, direct lending is only around 20% of Oaktree’s investments in performing credit and less than 15% of our overall assets under management.

3. Since (a) we expanded our assets far less than many other alternative credit managers (Oaktree’s AUM “only” doubled over the last decade) and (b) direct lending was a limited part of our AUM growth, we’ve felt less pressure to invest quickly or compromise our standards. That meant we could remain highly selective, limiting the amount invested in software and restricting it to what we believe to be the best opportunities. Most of Brookfield/Oaktree’s private credit funds operate outside of direct lending and thus have only limited holdings in software.

4. 80% of Oaktree’s total investment in private credit is on behalf of institutional clients, meaning very little was placed with the public. While the leading managers of public direct lending vehicles have $40-50 billion or more there, we have just over $10 billion.

👉 Read Howard’s full memo here

💰Fundraising News

Opportunistic

Blackstone closed its $10 billion Capital Opportunities Fund V, its largest opportunistic credit fund raised to date. Blackstone’s opportunistic credit strategy has generated a 13% net IRR since inception in 2007. More here

Ares closed its $9.8 billion Special Opportunities Fund III. The fund provides private debt, equity and hybrid solutions that fill the gap between for-control private equity and more traditional corporate lending, while also opportunistically purchasing stressed public corporate credits. Since inception, the strategy has deployed over $17 billion and generated over $11 billion of realized proceed. More here

Blue Owl closes its $2.9 billion Asset Special Opportunities Fund IX. The fund employs a flexible mandate with the ability to allocate dynamically throughout changing market conditions. More here

Direct Lending

Guggenheim Investments, a New York-based manager, closed its $8.4 billion Private Debt Fund IV. The fund sources first lien senior secured loans in both sponsor-backed and non-sponsor-backed companies within the US core middle market. Guggenheim currently serves as the lead investor on over 90% of the capital invested by PDF IV and is the sole investor on 35% of invested capital. More here

Real Estate

ICG Real Estate, the real estate division of London-based manager, ICG, closed its $1.6 billion Opportunistic Real Estate strategy. The Portfolio comprises of approximately 100 assets on long-term, inflation-linked leases. It offers investors access to opportunistic returns within the European Industrial and Logistics sector, with assets typically sourced off-market through non-traditional routes, including proprietary sale-and-leaseback transactions with corporates. More here

Secondaries

Antares Capital, a London-based manager, closed its second continuation vehicle with over $1.7 billion in commitments. The transaction was led by Ares Credit Secondaries funds. The fund was established to purchase assets from a closed-end private credit fund comprising over 300 underlying first-lien, floating-rate loans. More here

Arcmont Asset Management, a London-based private credit manager, closed its $2.5 billion credit continuation vehicle. The transaction was led by Ares Credit Secondaries. The CV acquired a portfolio of largely first-lien senior secured loans from Arcmont’s 2019 vintage, Direct Lending Fund III. More here

Other

17Capital, a London-based NAV lender, closed its $7.5 billion Credit Fund 2. According to PitchBook, Credit Fund 2 represents the largest NAV loan fundraise. The fund provides NAV loans to well-established private equity funds across the U.S. and Europe. Since launching its dedicated NAV loan program in 2020, 17Capital has deployed more than $7.5 billion across 30 NAV loans, including $2 billion already deployed from Credit Fund 2. More here

OIC, a New York-based manager, closed its $1.6 billion Credit Opportunities Fund IV. The infrastructure fund invests in middle-market infrastructure. OIC’s target investment sectors include transportation, storage & logistics, digital infrastructure, renewable power and fuels, waste & recycling, energy efficiency and other infrastructure. More here

Mercer announced its $3.8 billion Private Investment Partners VIII. The fund offers investors access to a spectrum of global private assets across private equity, private debt, infrastructure, and real estate. PIP consists of a US vehicle for US investors (Onshore) and a Luxembourg vehicle for non-US investors (Offshore). The funds invest across primaries, co-investments and secondary opportunities. More here

Breakwall Capital, a New York firm specializing in the energy industry, and Vitol, a leader in energy and commodities, closed their Valor Mining Credit Partners II. The fund makes structured credit investments in mining and critical minerals companies. It primarily targets event-driven financing opportunities, including debt refinancing, acquisition financing, and development capital. In less than three years, the Valor energy credit franchise has invested over $2.1 billion to support the upstream oil & gas, mining, and critical minerals sectors. More here

This newsletter is for educational and entertainment purposes only. It should not be taken as investment advice.

If you’re reading this on Outlook, most of the graphs won’t show. I’d recommend you read it online

Private Credit’s Tough Reality

There’s no sugar-coating it. The fundraising environment has taken a noticeable turn for the worse. Fewer funds came to market, and those that did were smaller, with average fund size down nearly 10% year-on-year.

• Number of funds raised: 51 (DOWN 18% YoY)

• Total amount raised: $89 billion (DOWN 25% YoY)

• Number of Countries where funds were raised: 11 (DOWN 21% YoY)

Lending money isn’t hard. Getting repaid can be hard. The managers who understood that during the very good times are the ones who will stand out now in this less certain environment.

TCW: Looking Beyond Cockroaches and Canaries

Asia is the Growth Story 🌎

Asian private credit fundraising surged, with fundraising growing 10x year-on-year. While KKR’s latest $2.5bn Asia fund accounted for half of this, a growing number of managers are expanding their presence in the region. This momentum is being reinforced by partnerships, such as Citigroup’s collaboration with Blackstone, Blue Owl, and KKR.

Europe’s 70% decline is exaggerated by the absence of mega-funds this quarter. Last year, Ares raised $17.6 billion for its Ares Capital Europe V. Excluding this, the decline is closer to 40%

We’re taking this strategy global. When you think about why we were just in Japan, when you think about the Industrial Renaissance and that part of the globe, Asia Pac, along with how we’re focused on Europe, the answer to your question, big picture, is we’re going to take a very successful strategy of integrating origination to every aspect of our business.

Apollo Q4 earnings

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The Five Largest Funds Raised 60% of the Capital…

1. Churchill Asset Management’s $16 billion Senior Loan Strategy

2. GSAM’s $13 billion Mezzanine Partners IX

3. Benefit Street Partners $10 billion Real Estate Opportunistic Debt Fund II

4. Ares $7.1 billion Credit Secondaries fund

5. Monroe Capital $6.1 billion Private Credit Fund V

The Middle is Getting Smaller…

👉 This is the single most important takeaway this quarter: capital is concentrating at the top.

The average fund size for the top 5 managers is relatively stable:

• $10.6bn (2024)

• $11.0bn (2025)

• $9.7bn (2026).

The mega-managers raise the same amount of capital regardless of market conditions.

Everyone below these managers is under pressure. The average fund size for these dropped from $1.1bn to $0.9bn, and total capital raised has halved—from $64.3bn in Q1 2025 to $32.3bn in Q1 2026.

This is where the real dislocation lies. If you are a GP ranked outside the top 5, your available LP capital pool shrank by roughly 50% in twelve months.

📕Nick’s Top Articles for Q1

1. Q4 2025 Alt Manager Earnings: What the Biggest Firms Are Talking About

2. The Rise of Credit Secondaries

3. Three Takes on Blue Owl’s OBDC II

4. The Evolution of Private Credit in 2026

5. Howard Marks: Mistakes cause mispricings

Opportunistic Overtakes Direct Lending

Opportunistic capital surpassed direct lending for the first time on record with fundraising doubling over the last two years. Not only did they raise more, Opportunistic funds were also 70% larger than other strategies. Goldman’s $13bn mezzanine fund and Benefit Street’s $10bn CRE opportunistic fund were the standout funds.

For more on this trend, see Dispersion Is Back

Credit secondaries volume has set new highs every year post 2020. Credit secondaries fundraising tripled year-on-year, with Ares $7 billion raise leading the way.

For more on this trend, see The State of Private Credit Secondaries.

Direct Lending’s decline continues with 40% fewer funds raised YoY. Direct Lending accounted for 33% of new fundraising vs 66% in 2024. Churchill’s $16bn fund shows that mega-managers can still raise. The problem is for mid-market managers ($500m-$5bn). These funds raised 60% less YoY.

🏆 Nick’s Funds of the Quarter

During “risk off” periods, when risk premiums are attractive, both capital and liquidity leave the system. This is wrong-way risk for both the capital and manager

Sixth Street

🗄️ Brigade Capital’s $1 Billion Inaugural Private Credit Fund

In contrast to broader trends, Brigade raised its inaugural direct lending private credit fund. The New York-based manager will finance lower-to-middle market and non-sponsored borrowers.

⛏️ Orion Resource Partners’ $2.2 billion Mine Finance Fund IV

Orion, a New York-based manager, completed its largest ever fundraise. The fund finances the construction and acquisition of strategic metals and critical mineral assets. The fund is already 61% committed across a portfolio of projects, spanning North and South America, Europe, Australasia, and Africa.

🦒 XSML Capital’s $142 million African Rivers Fund IV

The fund finances SMEs in African frontier markets with loan sizes between $300,000 to $10 million. Investments to date are concentrated in the DRC (47%), Angola (22%), Uganda (17%), and Zambia (14%), across manufacturing, retail, beverages, food processing, and the pharmaceutical sector.

This newsletter is for educational or entertainment purposes only. It should not be taken as investment advice.

If you’re reading this on Outlook, most of the graphs won’t show. I’d recommend you read it online

📕 Reads of the Week

Manager Updates

• Partners Capital: Redemption pressure is generating opportunities within secondaries to acquire performing loans at material discounts. Link

• Dell Family Office Hunts Private Credit ‘Gems’ Amid Turmoil. Link

• CVC Credit Perspectives. Link

• Carlyle and Andalusian Credit Company launch partnership to invest in middle-market loan assets and other cash-flow-producing private credit interests. Link

Market Updates

• KKR: Thoughts From Japan Link

• Pemberton: Separating Signal from Noise and Why European Private is Credit Different Link

• Tikehau: A Search For Harmony. Link

BDC / Interval Fund Updates

• JPMorgan launches Public and Private Credit interval fund with 7.5% quarterly repurchase capacity.😉 Link

• Moody's Ratings downgrades FS KKR Capital Corp.

  • PIK income was 14.7% of FSK's total investment, significantly higher than the peer median of 6.3%.

  • FSK's debt-to-equity leverage increased to 1.30x compared to 1.11x.

  • The stable outlook reflects FSK's sufficient liquidity position, well-laddered debt maturities, and low absolute leverage on a debt-to-equity basis.

  • They expect its asset quality to remain challenged, driving more volatile profitability than peers.

  • More here

• Tikehau: Liquidity and Gating. Link

Mistakes cause mispricings.

Howard Marks shares his reflections on themes from Oaktree’s recent client conference. I’d recommend listening to his comments on buying from sellers who are making mistakes (10:36)

👉Listen to the interview here

Market efficiency means that every security is awarded a price, and if you buy it at that price, you get a fair risk-adjusted return. No more, no less…

We’re not happy with that. We want to get excess return, returns that are more than commensurate with risk. To do that, you have to buy assets, not at fair prices, but at unfair prices. We want to buy things for less than they’re worth. That requires cooperation for someone who’s willing to sell something for less than it’s worth.

And who volunteers for that job?

We want to buy from sellers who are making mistakes. And a lot of these in the history of Oaktree have also stemmed from people who bought companies and made mistakes. They overestimated the growth potential, overestimated the solidity of the earnings, overestimated the ability to survive or thrive in a negative economic environment, levered up too much, and eventually became distressed as a result.

What are some of the sources of the bargains we seek?

• Complexity - People don’t understand something, and they’re scared by its complexity.

• Difficult to source. - Some of these things are held deep in portfolios in the bowels of institutions, and we have to go find them and get somebody to sell them to us.

• Supply, demand - There are a lot of people who want to sell something at a given point in time, fewer people want to buy it, that pushes the price down, hopefully to unreasonably low levels where we can pick it up.

• Technical reasons - There was a rule for a while that if a bond was downgraded below investment grade, certain holders had to sell it. Now, they might not want to sell it if the price is unreasonably low, but the rules require them to do so. That’s technical.

In the last few months, the tide has been going out, especially in areas like private credit and we start to see which structures may have been unwise.We actually haven’t had many defaults yet, so we haven’t had a chance yet to see who made bad loans. That’s coming too.

We’re ready for shakiness in ‘26.

And I think that when the bloom is off the rose and people start thinking about the negatives and not just the positives, and when they start to reflect risk aversion and not just FOMO, I think we’ll get much better buying opportunities in the months ahead than we did in the months just passed.

👉Listen to the interview here

HALO 🏭 🚄

Hard Assets, Low Obsolescence

Asset light is out. Hard assets are in. Factories, fiber and railroads are the new celebrities of the investing world. Like most inflections, the trend has even earned its own acronym. HALO (Hard Assets, Low Obsolescence)

👉Read Apollo’s report here

HALO owes its existence to the growing angst surrounding increasingly powerful AI models and their potential to disrupt large swaths of the economy. Enterprise SaaS companies, whose revenue multiples have collapsed by 38% over the past six months, have borne the brunt of these obsolescence fears. But the wave of disruption anxiety has not stopped there; it has spread to a range of labor-intensive professions, including accounting, insurance brokerage and wealth advisory

Enterprise SaaS companies have collapsed by 38% over the past six months

The market is currently expecting $4 trillion of digital infrastructure investment by 2030

• For this investment to deliver an acceptable return, AI revenue must climb to $2 trillion by 2030.

• This is a 40x increase vs 2025 AI Revenue.

• Some of this will come from GPU-accelerated improvements to existing software workloads, like better advertising models and recommendation engines.

• But the bulk will have to come from genuinely new AI-driven products and services

$2 trillion of revenue is equal to the total size of the global enterprise software and online advertising markets combined.

• Admittedly, these industries do not have the ambition of AI which hopes to automate a large portion of the $60 trillion in global knowledge workforce compensation.

• Through that lens, $2 trillion represents only ~3% penetration.

Balance sheet capacity is becoming a gating factor across the AI ecosystem

• OpenAI finalized a $100 billion round, after previously raising a record-breaking $40 billion

• Apollo is most focused on how this multi-trillion-dollar investment in infrastructure will be financed and who ultimately bears the balance sheet risk if revenue realization lags.

• The faster AI-driven disruption converts into recurring revenue and free cash flow, the more self-funding the infrastructure buildout becomes.

👉Read Apollo’s report here

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💰Fundraising News

Pollen Street, a London-based manager, raised $2.1 billion for its Credit Fund IV. The asset-backed lender finances everything from building homes, funding SMEs, and vehicle financing. It provides predominantly senior secured loans to non-bank lenders, leasing businesses, and technology companies. More here and here

Treville Capital Management, a US-based manager, closed its $500 million Capital Solution fund. The fund invests across the capital structure, including senior secured loans, junior debt, and preferred equity in a wide variety of sectors. Link

SCOR Investment Partners, a French manager, raised $300 million for its Real Estate Loans V fund. The fund finances the renovation, restructuring, repositioning, or development of real estate across major European metropolitan areas. It invests through senior loans and targets an IRR of around 6%. Link

This newsletter is for educational and entertainment purposes only. It should not be taken as investment advice.

If you’re reading this on Outlook, most of the graphs won’t show. I’d recommend you read it online

Private credit coverage surged to its highest level in March

What’s frustrated me most is how relentlessly clickbait the coverage has become, even when the underlying data has been broadly sound.

The pattern is always the same. A dramatic headline, a rush of commentary, and a far less dramatic reality underneath.

Exhibit 1: BCRED’s monthly loss

Flagship Blackstone credit fund posts first monthly loss since 2022
Financial Times | 2 days ago

Blackstone Private Credit Fund Has First Monthly Loss Since 2022
Bloomberg | 2 days ago

A lot of people sent me this story. But behind the headline, BCRED’s monthly total return was down just 0.4% last month.

I will repeat that, all of this noise was about a 0.4% decline.

Put differently, if you invested $100,000 in January 2021, you would still have roughly $160,000 today, despite this drop.

Exhibit 2: Cliffwater’s Negative Outlook

Cliffwater Private Credit Fund’s Outlook Cut to Negative by S&P
Bloomberg | 4 days ago

Press coverage also focused heavily on the negative outlook for Cliffwater’s BDC, particularly the redemptions.

In reality, S&P wrote:

We affirmed the 'A' rating on the fund because it maintains good asset quality, low leverage compared with peers, and satisfactory liquidity despite the wave of investor redemptions in the first quarter.

The nonaccrual loan rate has barely ticked up from last year and is well below 100 basis points.

Exhibit 3: Bank of America Shorts European Private Credit

BofA pitches bets against European private credit
Financial Times | 3 days ago

The media also seized on Bank of America’s call on European private credit.

But the very next day, BofA withdrew the recommendation and apologized for “factual inaccuracies”.

What has struck me most in all of this is the number of smart, informed people who have been drawn into debating these stories.

Private credit’s biggest danger may not be that the asset class is collapsing. It may be that enough people start to believe it is

📕 Reads of the Week

Market Updates

• Covenant Lite: What software investors can learn from the 2014 energy collapse. Link ***Recommended***

• Pimco analyses private credit’s illiquidity premium. The absence of continuous, mark‑to‑market pricing in private assets should not be viewed as a structural flaw. Rather, it reflects a distinct risk profile, one for which investors must be explicitly and adequately compensated. Link

• LCD’s Q1 Global Private Credit Survey. Link

Manager Updates

• Emerging managers to watch in 2026. Link

• Franklin Templeton launched a new target-date fund for 401(k) investors that includes a private market allocation. The fund allocates between 2% and 8% to private markets along the glide path. The private credit allocation will be implemented through the Franklin BSP Lending Fund. Link

• JPMorgan and Goldman provide hedge funds with tools to short private credit. Link

BDC / Interval Fund Updates

• Oak Hill Advisors is launching a new interval fund, OFLEX, designed to deploy capital across public and private credit markets. The fund will target a spectrum of credit opportunities, including direct lending, asset-backed finance, collateralised loan obligations, public credit, and special situations. Link

• Apollo Debt Solutions received redemption requests for 11.2% of shares. The fund will pay out the quarterly 5% repurchase cap. Link

Sixth Street: Investors in our industry have two choices, the “what” and the “when”.

If you want a blunt view of what is happening in private credit, Sixth Street’s letter is worth a read. Below are my highlights.

👉 Read the full letter

During periods of elevated volatility, it can sometimes be difficult to separate factual conclusions from emotions like exuberance and fear. But as investors, our job is to be aware of and discern the differences between the two.

From redemptions in the perpetual non-traded sector to the AI hype cycle to whatever comes next, our focus remains on the fundamentals. AI is a world-changing technology, but sentiment is leaving little room for nuance.

The current market discourse is conflating equity valuation volatility with fundamental credit risk.

Beneath what is grabbing today’s fearful headlines is the fact that over the past few years exuberance outran facts regarding BDC unit economics. The lack of disciplined risk management on the liability side of the business, specifically the shift towards gathering client funds intended to be immediately deployed rather than patiently invested, has led to structural underearning and looser protections on assets across the sector.

The result is what we see today: a BDC sector going through an intense yet warranted reset.

The dispersion between the minimum and maximum ROE is the widest we have seen.

Zooming out across the broader BDC sector, we believe most of the issues the industry is facing today result from structural risk management failures pertaining to liquidity and capital frameworks. Over the past several years, new vehicles designed with incentives that sacrificed robust capital and liquidity guardrails in favor of short-term asset gathering were introduced and proliferated, targeted at a largely retail client base with which the industry has shallower relationships compared to the institutional investors that initially funded the sector.

Investors in our industry have two choices, the “what” and the “when”.

Vehicles built on perpetual retail flows are vastly limited in both choices as retail capital ebbs and flows. You are limited on the “when”, because dollars that come in need to be put to work right away, and the “what” is therefore determined in large part by what is on the menu at that time. In addition, there is wrong way risk as it relates to flows. Flow levels tend to be the largest when risk premiums are at all time tights. You only have to look at 2024 and the Q1 2025 collapse in private market spreads. During “risk off” periods, when risk premiums are attractive, both capital and liquidity leave the system. This is wrong-way risk for both the capital and manager (as there is a promise and an expectation of liquidity, even if the fine print includes redemption gating provisions). These risks are borne by all shareholders.

Dividend cuts have nothing to do with credit losses

When you combine base rates of approximately 350 basis points today with new investment spreads that have dipped below 500 basis points, the resulting ROEs, even before accounting for credit losses, fall below both the industry’s current estimated cost of capital and the returns that were promised to investors.

To be clear, the dividend cuts that have started to proliferate across the BDC sector over the past few quarters have nothing to do with credit losses. The loss rates for private credit have been relatively stable. But the math will tell you the sector cannot fund current dividends at the spreads at which it has been deploying capital.

Given the overwhelming bulk of BDC assets are floating rate in nature, movement in dividend levels over time – both up and down – should not be surprising on its own. Post-COVID, as we moved into a pronounced rate rise cycle, asset level returns increased, leading to higher payout levels through increased dividends. Similarly, as we have seen reference rates decline from the peak last seen in mid-2023, the notion of lowering dividend levels should be in part a logical and expected outcome.

But it has been the combination of lower reference rates (largely a non-controllable factor for BDC managers absent negotiating for high floors), together with a deployment objective that prioritized capital out the door rather than return on equity, that has led to returns across the sector falling below the equity cost of capital threshold.

Due to a combination of headline-driven fear and weaker performance math, investor trust in direct lending has been damaged.

Liquidity is being taken wherever it can be found, leading public BDCs to trade down and perpetual non-traded BDCs to wrestle with whether to exercise gating provisions

History tells us that once trust cracks and liquidity is impaired, that cycle is difficult to quickly reverse.

If you believe in efficient markets, public BDCs trading at significant discounts versus similar private counterparts is an arbitrage that will resolve over time. Capital will be reallocated, and the public BDC sector should benefit as the liquidity-taking abates and discounts normalize.

The rebalancing of the ecosystem will take time to fully materialize, but it should ultimately result in the widening of new origination spreads and a healthy recalibration of the supply-demand dynamic for private capital.

In periods of significant redemptions, inflows tend to decline significantly.

As we witnessed during the redemption cycle that impacted non-traded REITs in 2022, flows are typically correlated in the sense that in periods of significant redemptions, inflows tend to decline significantly.

That is what we are now seeing in the non-traded BDC market. Utilizing liquidity for redemption activity (e.g., holding a liquidity sleeve in broadly syndicated loans) will, by definition, drive lower returns for non-traded vehicles; lower returns will result in increased capital flows to better relative return opportunities in other sectors of the market. We do not believe this environment will reverse in one quarter. If the non-traded REIT segment is any guide, this capital flow dynamic will last multiple years.

While some may believe today’s volatility is only a minor episode to be weathered, we believe there is going to be an honest reckoning for the sector resulting in a healthier and more resilient direct lending industry

👉 Read the full letter

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Hamilton Lane: Evergreen’s will dominate private credit

👉 Hamilton Lane: Evergreen’s will Dominate

The evergreen world has gone from, effectively, $0 to $500 billion in the last decade. And the top managers are vacuuming up impressive sums: The largest evergreen fund’s NAV exceeds the combined NAV of the five largest closed-end funds raised in 2024.

The credit fundraising market will increasingly be dominated by evergreen vehicles.

Will larger institutions embrace that form of investment for their credit portfolios?

They already are.

The growth in the size of the private credit market, together with the growth of the evergreen channels, will result in a small group of very large managers.

If you are not a major player in that space now or in the very near future, you will not have a meaningful private credit franchise. You might have a meaningful niche strategy or place in the market, but scale will increasingly matter in the credit space.

👉 Hamilton Lane: Evergreen’s will Dominate

💰Fundraising News

Goldman Sachs Asset Management is planning to raise $13 billion for its latest mezzanine debt fund, GS Mezzanine Partners IX. The fund invests in sponsored companies across North America and Europe. The fund will target net returns of 11%–13% using leverage, or 8%–9% on an unleveraged basis. More here

Orion Resource Partners, a New York-based manager, closed its $2.2 billion Mine Finance Fund IV. The fund finances the construction and acquisition of strategic metals and critical mineral assets. The fund is already 61% committed across a portfolio of projects, spanning North and South America, Europe, Australasia, and Africa. More here

Lone Star, a US-based manager, closed its $1 billion Residential Mortgage Fund IV. The fund invests in newly originated, performing U.S. non-agency mortgage loans. Non-agency borrowers generally include self-employed individuals and small business owners who do not have access to traditional agency and government-backed mortgages, despite often having strong credit profiles. With leverage, the fund is able to invest in over $10 billion of mortgage loans. More here

EOS Investors, a US-based real estate firm, announced a first close of $150 million for its inaugural hotel credit strategy. The strategy will focus on senior whole loans, mezzanine financing, and structured debt opportunities in the hospitality sector. More here

Walton Global, a US real estate manager, launched its U.S. Land Income & Growth Fund for offshore investors. The hybrid strategy provides senior secured loans to large national U.S. homebuilders. At the same time, the fund acquires pre-development residential land in U.S. metropolitan areas characterized by population growth, housing undersupply, and sustained homebuilder demand. More here

This newsletter is for educational and entertainment purposes only. It should not be taken as investment advice.

A close friend recently asked me why the Credit Crunch is so clearly biased in favour of private credit. Why don’t I link to the negative coverage? If you’ve had similar thoughts, I want to clarify that this is intentional, and there are two main reasons for this:

1. There’s no shortage of negative news. Why would you want your inbox weighed down by yet another predictable private credit bubble article? If that’s the kind of coverage you want, I’d encourage you to subscribe to two far more reputable publications: the FT and Bloomberg.

2. The future is shaped by tough-minded optimists. The leading managers aren’t sitting on the sidelines and giving up because they’ve had a few bad deals or a portion of their investors are concerned about their performance. The leaders are addressing the defaults, originating new deals, and raising their next fund. I’m focused on learning from these managers, and hopefully, reading this newsletter will allow you to do the same.

I’m always open to being challenged and would love to hear from you.

If you’re reading this on Outlook, most of the graphs won’t show. I’d recommend you read it online

📕 Reads of the Week

Market Updates

• Goldman Sachs: Taking The Keys: A Closer Look at the European Private Credit Market

  • Credit events in Europe are neither random nor evenly distributed.

  • Instead, they reflect an evolving macroeconomic backdrop and underwriting discipline.

  • Stress has not been market-wide; rather, it appears concentrated in specific segments

  • Stress events are likely to remain elevated relative to the last decade.

  • Manager selection in the asset class, therefore, should matter more than it has in the past.

  • 👉 More here

• 🎾 The Business of Pickleball: From niche to everywhere. Link

Manager Updates

• Deutsche Bank is expanding its private credit offerings. Link

• Apollo: The Evolution of Sustainable Credit. Link

BDC Updates

• Accredited Investor Insights takes a closer look at Cliffwater Corporate Lending Fund. Link

• Blue Owl recommends shareholders reject the unsolicited offer from Cox and Saba. Link

• Morgan Stanley received redemption requests for 10.9% of shares. The fund will pay out the quarterly 5% repurchase cap. Link

• Cliffwater received redemption requests for 13.9% of shares. The fund repurchased 7% of shares outstanding, which is the maximum amount permitted without changing the terms of the repurchase offer. Link

Partnership Updates

• Bank of Ireland and Kennedy Lewis announced a €2 billion partnership to originate and jointly finance European mid‑market buyouts. Link

• Dignari secured a commitment from the Abu Dhabi Investment Authority (“ADIA”) for its APAC Developed Markets Private Credit Strategy. The real estate fund will finance developers, construction companies, financial institutions, and investors in APAC’s developed markets, with a particular focus on Hong Kong. The strategy will target financing opportunities for residential, office, retail, student accommodation, serviced apartment, co-living, data centers, and logistics segments. Link

Hamilton Lane: Where Are the Signs of Stress?

If you’re looking for support for private credit, start with this year’s Hamilton Lane report.

👉 Hamilton Lane: Private credit fundamentals are solid.

20 years ago, private credit was a cottage industry

• There were only 466 closed-end funds, which were primarily mezzanine and distressed managers.

• Private credit is about 24 times the market size now.

• Over this time, private credit took almost 50% of the LBO financing market from the public and syndicated bank lending markets.

Let’s ask a question about that: At what cost?

• Do we think the recent spate of defaults and frauds is a function of private credit actions?

  • With the increased capital available

  • With the increase in market share

  • With the ongoing press about the pressures on private credit

• The casual observer would think that yields and spreads of private credit over broadly syndicated loans were collapsing.

That would be a completely incorrect assumption.

• Sponsors want private credit and seem willing to pay for what it has to offer.

• There is no sign of stress with these spreads or returns, relative to BSLs.

But let’s keep looking because we are incessantly told private credit is in a bubble.

• Here is one of the features of this current cycle that is different from prior cycles

• As prices went up for acquisitions, leverage levels didn’t follow them up.

• For all the talk of the desperate private capital providers throwing money at deals, well, they didn’t.

• The equity cushion, that layer below the credit providers, is large.

• Very large.

Tell us, where are the signs of stress?

• Where are the signs of a bubble? Sure, they may be metaphysical, beyond the comprehension of numbers. Even there, we’re not seeing it.

• Everything looks average.

• Even coverage ratios are getting better.

• Is it super bullish? No.

Is it super bearish with any indication of imminent danger or collapse? No. We’ll say it clearly:

Private credit is not in a bubble. If it’s not in its Golden Age, it is in its Silver Age.

👉 Read Hamilton Lane’s Report

Subscribe now

💰Fundraising News

Eagle Point, a Connecticut-based private credit manager, closed its $559 million Defensive Income Fund III. The fund originates and invests in Portfolio Debt Securities, which are primarily debt securities issued by credit funds to finance a portion of their portfolios. Since the launch of the strategy in 2020, Eagle Point has originated and invested in over $8 billion of PDS across a range of credit funds, including private credit funds, closed-end funds, commercial mortgage REITs and BDCs. More here

This newsletter is for educational and entertainment purposes only. It should not be taken as investment advice.

One favour to ask: if you like this, please share it with a friend. If someone forwarded this to you, you can subscribe here.

If you’re reading this on Outlook, most of the graphs won’t show. I’d recommend you read it online

📕 Reads of the Week

Market Updates

• Barings: Digital infrastructure varies widely in quality. Many deal have already encountered challenges, and we expect more to follow. We’re extremely selective and these are a very small proportion of our portfolio. More here

• Apollo: Dispersion in private markets is meaningfully wider than in public markets.

  • Manager selection matters.

  • 👉 Read more here

• Ares: Private credit has consistently offered durable income at a premium

• 👉 Read more here

Manager Updates

• 🔉HPS’s Scott Kapnick on The Next Wave in Private Credit Link.

• 🔉RECOMMENDED LISTEN: Ares’ Joel Holsinger on Asset-Based Finance. Link

BDC Updates

“In the first quarter of 2026 , HLEND received shareholder requests to repurchase approximately 9.3% of shares outstanding as of December 31, 2025, exceeding the 5% framework for the first time since its inception…

HPS Corporate Lending Fund

• BCRED meets its record 7.9% redemption request. Link

• PIMCO: Don’t Mistake Private Credit for Just BDCs. Link

• Raymond James BDC Update

  • Raymond James posted a great update on BDCs.

  • Three of my favourite charts below

  • 👉 Read the report here

BDCs Trade Around 0.8x NAV, with Significant Dispersion

LTM Total Returns Averaged -15.7%

BDCs Generate Meaningful Fees for Managers

Partnership Updates

• AlbaCore partnered with MUFG to launch an infrastructure debt platform. The fund will finance UK and European infrastructure projects. Link

• Barings partnered with U.S. farmland investor Homestead Capital to launch a $300 million asset-based finance program. Homestead acquires, finances, and manages diversified portfolios of high-quality farmland assets. With operations across much of the U.S., Homestead’s credit strategy provides capital solutions to borrowers ranging from small and mid-sized farmers to large, vertically integrated agribusinesses. Link

Bain & Company: Lunch and a handshake simply won’t cut it anymore

This week’s feature is not strictly about private credit. But Bain’s Private Equity Report is an excellent all-round read. Below are my key takeaways. I’d also recommend reading why 12 is the new 5.

👉 Read Bain’s report here

Average hold periods have steadily increased since 2017.

But global distributions as a share of net asset value are at multidecade lows

The root problem can be seen in DPI for recent fund vintages.

Looking at the cohort from 2017 to 2021, GPs have underdelivered vs. historical performance for every vintage.

TVPI begins to flatten after year eight

And IRR starts to fall off even earlier.

None of this is exactly new.

With distributions to investors in drought stage for four years running, it’s no surprise that fund-raising continued to lag in 2025.

The GPs attracting capital in this period of scarcity are those that have delivered both strong returns and steady distributions.

LPs have become significantly more demanding. Increasingly, they are looking for top-quartile returns from recent funds as well as consistent, top-quartile DPI across funds.

Not only is it critical for a fund to be able to define and articulate a truly differentiated and repeatable strategy, focusing on sector specialization, world-class capabilities, or whatever else separates it from its peers.

The most effective firms are also transforming how they communicate that strategy in the marketplace. A professionalized investor relations capability is rapidly becoming table stakes in the buyout world. These organizations define the market clearly and learn what specific LPs want to hear in terms of metrics, coinvestment opportunities, fees, and DPI.

They target the right decision makers with well-crafted sales plays and ensure that the right message is getting to the right “customer.” Old-school networking still matters, of course. But lunch and a handshake simply won’t cut it anymore, even for firms that have been around for decades.

👉 Read Bain’s report here

Subscribe now

💰Fundraising News

Sound Point Capital, a New York-based alternative credit manager, closed its $1.5 billion Strategic Capital Fund III. The fund originates loans secured by cash-generative collateral, including accounts receivable, equipment, inventory, and other asset-based assets. More here

360 One, an Indian alternative asset manager, announced a final close of $400 million for its fifth vintage private credit strategy. The fund will continue providing structured and customised credit solutions to the established Indian companies. More here

Avila Real Estate, a US-based private credit platform, announced a second close of $200 million for its latest real estate debt fund. The fund provides senior credit solutions to land developers and homebuilders, including project-level, first mortgage loans for land development and first lien revolver facilities to support vertical construction. Combined with Hillwood as an anchor LP, the fund has some of the largest builders and developers in the country supporting the strategy.‍ More here

Partners for Growth, a California-based credit manager, launched a $180 million fund for later-stage, technology-focused borrowers. The PFG Income Fund has completed a first close and begun deploying capital. The fund will invest in structured growth debt, asset-backed financing and warehouse funding, including for fintechs and alternative lenders building loan and asset book. More here

This newsletter is for educational and entertainment purposes only. It should not be taken as investment advice.

One favour to ask: if you like this, please share it with a friend. If someone forwarded this to you, you can subscribe here.

If you’re reading this on Outlook, most of the graphs won’t show. I’d recommend you read it online

📕 Reads of the Week

Market Updates

• Market Financial Solutions, a UK mortgage provider with more than £2 billion of debt, enters administration. Banks account for the vast majority of the exposure. No prizes for guessing who the coverage is privately crediting. Link

European Lower Mid-Market Premium to Upper Mid-Market

• The European Lower Mid-Market premium to Upper Mid-Market Falls Below 60 bps.

  • 👉 Read Why Invesco is Focused on the Upper Mid-Market

Manager Updates

• Calpers Unfazed by Software Stress in Private Credit. Link

  • Anyone asking Bloomberg News what AI means for Bloomberg Terminal Subscriptions?

• Ares Alternative Credit's Fund Finance 2025 Year Review. Link

  • Deployment has more than doubled since 2023.

BDC Updates

“The problem is the right asset with the wrong structure. There’s a silver lining: you can still use this structure, but don’t promise outperforming returns, don’t use so much leverage, and get back to basics of underwriting.”

Mathieu Chabran, Co-Founder of Tikehau Capital

• BlackRock Private Debt Fund Slumps After Slashing Dividend. Link

• Apollo’s MidCap Financial cut its dividend and marked down the value of its assets. Link

• New Mountain Finance agreed to sell $477 million of assets to a third party at 94% of fair value for the purposes of increasing portfolio diversification and reducing PIK income. Link

• FS KKR Capital Q4 FY2025 earnings call transcript. Some fairly spicy questions on fees. Link

For investors concerned about the uncertainty of technology obsolescence risk, enterprise value destruction for the software industry, and the burgeoning threat of artificial intelligence, SLR Investment Corp.'s portfolio, with its lack of software exposure, can be viewed as a safe haven

Michael Gross, CEO of SLR Investment Corp, Speaking at his Q4 earnings

Partnership Updates

• BNP and Apollo Global are expected to announce a European private credit partnership with both firms jointly arranging loans for corporate and private equity-backed borrowers across the region.More here

Looking Beyond Cockroaches and Canaries

TCW published a great piece on how it thinks about the current state of private credit. Below are my extracts.

👉 Read the full piece here

Whenever someone says, “private credit did X,” the questions should be:

• Which part of private credit?

• Who in private credit actually made this investment?

Jamie Dimon talked about cockroaches, others about canaries. While we believe there’s truth in these comments, they don’t completely capture what’s happening.

The core issue isn’t that these specific companies failed. The message is that aggressive, careless underwriting has been creeping into the market for the past seven or eight years. During that time, we had near zero base rates, expanding enterprise value multiples, abundant capital, and no recessions. This environment fostered, and hid, a lot of bad lender behavior: looser documentation, shortcuts in diligence, increasingly more borrower friendly terms.

Now that rates are normalizing and economic volatility is back, we expect this aggressive behavior will be exposed.

By no means is this the end of private credit. These events are reminders that many lenders haven’t been as prudent as they should have been. We expect to see more mistakes.

A Glimpse From Software

When the biggest part of the market is built on the idea that growth is durable and recurring revenue solves most problems, even a small reset can reveal where lenders leaned too much on the narrative and not enough reliance on conservative lending assumptions.

That doesn’t make software a “problem sector,” any more than First Brands or Tricolor made their respective industries a problem. It just reminds us that when a large corner of the market is priced with little to no margin of error, the surprises tend to show up in bunches – not because everything is connected, but because the overall behavior behind these loans was similar.

Dispersion Is Coming – Principal Preservation Matters Again

For most of the post Global Financial Crisis (GFC) era, private credit managers all looked pretty similar and pretty good. Defaults were rare, recoveries were decent, and the environment frankly didn’t test whether lenders knew what they were doing. That period is over.

Lincoln International’s estimate that there was $24 billion in foreclosed debt in 2025, nearly 2x the previous three years combined, shows lenders are finally taking remedies on underperforming companies.

That’s not a sign of crisis. In our view, it’s a sign of a maturing market – and of a long overdue differentiation between strong and weak underwriting. It’s a return to focusing on the single most important differentiator in credit investing: principal preservation. Not deployment. Not AUM growth. Not headline yields. We have said it many times: lending money isn’t hard – getting repaid can be hard. The managers who understood that during the very good times are the ones who will stand out now in this less certain environment.

The Vintage Problem – And Why 2021-2022 Is Showing Up Now

A lot of the pain emerging today traces back to the 2021-2022 post-COVID environment.

Low rates, unsustainable and elevated enterprise value multiples, fierce competition, and enormous pressure to put capital to work.

Many lenders stretched. Some ignored valuation discipline. Others leaned into borrower friendly terms because of the pressure to win the deal. These mistakes cannot be fixed after the fact. You can’t retrofit discipline. Adding restructuring help to the staff now feels a bit late.

We expect the next several years could look “vintage sensitive,” even though we do not believe private credit should be considered a vintage driven asset class.

Figure 1. Global Dry Powder by Asset Class

Source: Pitchbook

Deals Matter More Than Capital Inflows

People often say today’s tight spreads and weaker structures are because too much dry powder and fresh capital has moved into private credit. While we understand the sentiment, we don’t think that’s the root cause. Private equity has significantly more dry powder than private credit, (see Figure 1). They’re simply not deploying it. The real issue is too few deals in the market, (see Figure 2).

Figure 2. Private Equity Platform M&A Activity

Source: Lincoln VOG Proprietary Private Market Database

Until sponsors start actively buying companies again, lenders will be competing for a limited set of transactions – and when competition heats up, underwriting standards slip. But over time, we believe the market deals with this.

Managers without discipline don’t survive stress.

👉 Read the full piece here

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Howard Marks’ Key Questions on AI

Howard Marks Revisited AI. Below are the key Q&As.

👉 Read the full memo

Is the technology a fad or an illusion?

I say with conviction that it’s a very real thing, with the potential to vastly alter the business world and change much of life as we know it.

Is the application of the technology a distant dream?

Clearly, the technology is already in demand and being applied on a large scale. Since AI seems amorphous and little understood, I think its potential is more likely to be underestimated today than exaggerated.

Are the people building AI infrastructure behaving unwisely?

In every example of sweeping technological innovation, the headlong rush to build infrastructure has vastly accelerated the adoption of the innovation and caused a lot of capital to be “malinvested” and destroyed. There’s no reason to assume this time will be different.

Will the investment in AI infrastructure produce an adequate return?

Since we don’t have full knowledge of AI’s business potential or its impact on profitability, this question can’t be answered. There’s certainly great enthusiasm for AI businesses. We’ll know in 10 years whether the resulting profits justified it.

Are the valuations assigned to AI businesses irrational?

The so-called hyperscalers, for whom AI is one important part of a great business, may be overvalued or undervalued, but it’s unlikely that today’s prices for enormously profitable companies like Microsoft, Amazon, and Google are going to turn out to have been ruinously excessive. Established pure AI plays like OpenAI and Anthropic have yet to be listed publicly; we’ll see what kind of valuations their IPOs result in. Finally, the startups to which multi-billion-dollar valuations are being assigned – some of which have yet to describe their strategies or announce products – can only be viewed as lottery tickets. Most people who participate in lotteries end up with worthless tickets, but the few winners get very rich.

👉 Read the full memo

💰Fundraising News

Arcmont Asset Management, a London-based manager, closed its $1.8 billion Capital Solutions Fund II. The opportunities fund invests in more complex credits, junior capital, and market dislocations. Since launch, the strategy has invested nearly €2 billion in more than 50 transactions. Capital Solutions II is currently c. 55% committed with a portfolio of more than 20 investments. More here

5C Investment Partners, a New York-based manager, announced a partnership with Qatar Investment Authority. 5C provides direct financing to high-quality companies in the upper middle-market. The new investment will help the expansion of 5C’s existing direct lending platform and drive the development of new investment strategies. 5C has grown its platform to $3 billion of investable capital since launching in 2024. More here

Appendix / Cut

• Brookfield says software loans are not systemic. Link

• Stepstone on recent trends in corporate direct lending 2H25. Link

PE Distributions vs 20-year Average

Now that returns in private credit are 8 or 8.5%, the returns on the public credit side seem to be 6 or 6.5%. So that relative value still holds.

That’s the right way to evaluate it. Are you being paid sufficiently for the illiquidity that you are assuming?

That’s demonstrably yes.

Mike Patterson, HPS Founding Partner and Co-President

This newsletter is for educational and entertainment purposes only. It should not be taken as investment advice.

If you’re reading this on Outlook, most of the graphs won’t show. I’d recommend you read it online

📕 Reads of the Week

Market Updates

Private Credit Dispersion is widening

• Current default rates remain modest, Proskauer’s lastest index reported a 1.84% default rate, consistent with the second quarter’s 1.76%, but stress typically manifests with a lag.

• Return dispersion has elevated and Nuveen expects it to widen further as performance issues surface among managers that:

  • Competed aggressively for deals in crowded markets

  • Relaxed leverage, documentation or structural protections during peak deployment periods

  • Drifted from core strategies in pursuit of scale

👉 Read the full report here

European Recapitalisation Surged nearly 4x in 2025

• In total, €5.5bn of European direct lending deals were recapitalisation-related, materially higher than the previous record of €2.6bn in 2024.

• Pitchbook recently reported that the median hold time for private equity owned companies has risen to 3.8 years, the highest level since 2011.

• 👉 Read CVC’s Q4 2025 Credit Perspectives - here

The $1.2T Funding Gap Driving Private Credit Growth

• Hamilton Lane compared private equity dry powder againsts private credit dry powder.

• Based on their analysis private credit has $1.2 Trillion less dry powder.

• If you assume 50% LTVs, the implied funding gap is at least $1.2 trillion

• In practice, many of these companies may use less leverage or access BSLs and other liquid credit markets.

• 👉Read the report here

Venture-debt loan deterioration has accelerated sharply since 2022

• Given venture debt’s sector composition, IT exposure would seem a natural explanation for the rise in distress. IT represents nearly 40% of the net asset value in venture debt, compared with 19% for direct lending and 7% for opportunistic funds.

• However, it’s health-care borrowers that have largely driven the recent venture-debt write-downs, while technology loans have exhibited below-average rates of distress.

• 👉Read the MSCI’s report

  

Manager Updates

• Bank of America is committing $25 billion to private credit. Link

• Apollo: How Is Liquidity Evolving in Private Investment-Grade Credit? Link

• Ares’ 7 Priorities for 2026. Link

• KKR: Ctrl + Alt + Credit. Link

Partnership Updates

• CVC has partnered with AIG to manage up to $2 billion in insurance-focused private credit mandates. More here

Three Takes on Blue Owl’s OBDC II

You’ve probably read a lot about Blue Owl this week. Instead of adding to the noise, below are three of the top articles I’ve read.

CovenantLite: Blue Owl on the Ropes. Link

Using OBDC’s roughly 1.19x debt-to-equity leverage, a 23% discount implies about a 10.5% gross markdown on the portfolio

In other words, if you take OBDC’s discount literally as a pure credit-loss forecast, the market is pricing something like a GFC-level (or worse) loss cycle.

So Is the Discount Overdone?

The short answer is a cautious yes, but only if you treat OBDC’s discount as a pure forecast of credit losses.

OBDC is not in active distress.

👉 Read CovenantLite here

Leyla Kunimoto’s deepdive into understanding 🦉 OBDC II’s asset sale and structural shanges. Link

Everything sold was rated 1 or 2, these are the best quality assets in the portfolio. After backing out the ~$538M in fair value that just walked out the door (the $600M headline includes unfunded commitments), OBDC II’s remaining portfolio shrinks to roughly $1.18 billion. The problem children are still in the portfolio…

If we add up non-accruals and the impaired second-lien names, you’re looking at roughly ~15% of the remaining portfolio. That’s up from ~10% before the sale.

👉 Read Leyla’s substack here

Cliffwater: Blue Owl’s problems are not investment-related but instead caused by its BDC’s obsolete structure. Link

Blue Owl has now done the right thing.. Returning 30% of investor capital that otherwise would have taken well over one year.

Full liquidity for OBDC II investors will likely come over the next year

We view the Blue Owl sale transaction as a sign of strength in the private debt market and not, as the Wall Street Journal characterized it, as a warning sign.

Headlines cherry-picking loan defaults are also running contrary to actual private loan performance. OBDC II historically delivered strong loan performance since its March 2017 inception. Its underlying loan portfolio has returned an annualized 9.11% through September 30, 2025, compared to 9.19% for the Cliffwater Direct Lending Index (“CDLI”) covering the same period.

👉 Read Cliffwater’s analysis here

Saba Capital and Cox Capital Partners

Saba Capital Management today disclosed that they provided notice to Blue Owl Capital Corporation II of their intention to commence a tender offer to purchase a portion of outstanding shares of OBDC II in cash…

The offer price is expected to be at a 20-35% discount to the most recent estimated net asset value

👉 Read Saba Capital’s press release here

I still have a few outstanding questions: 1) What is OBDC II’s fund end date / why accelerate the run-off now? 2) Has anyone forecasted the fund’s cashflows over the next few years? What does this loan portfolio look like? 3) Why didn’t Blue Owl just pay the 5% quarterly redemption over the next 6 quarter?

If you know the answers to any of these please comment below / send me a message.

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💰Fundraising News

Fortress is adding an unleveraged sleeve to its latest private credit vehicle as it looks to broaden appeal among insurance companies. The new structure will sit alongside the leveraged version of Fortress Lending Fund V, which is targeting total commitments of at least $3 billion. While the leveraged sleeve will invest in a mix of direct corporate lending and asset-based finance, the unleveraged option will focus primarily on direct corporate loans. Fortress is targeting net internal rates of return of around 11% to 14% for the leveraged sleeve and approximately 8% to 9% for the unleveraged version. More here

Ares and Coller Capital closed a continuation vehicle for Ares U.S. Direct Lending’s 2018-vintage fund with more than $1.3 billion in total commitments. The continuation vehicle comprises a diversified portfolio of first-lien, floating-rate loans to U.S. middle-market companies backed by leading private equity sponsors. More here

CAPZA, a French investment manager, announced a first close of $1.7 billion for its Private Debt 7. The fund provides financing to SMEs and mid caps primarily in France, Germany, the Benelux, Spain and Italy through unitranche and subordinated debt. This seventh vintage is part of the broader offering of BNP Paribas Asset Management Alts, which currently manages approximately €135bn in private debt and alternative credit assets. More here

Tikehau Capital, a French alternative asset manager, announced a final close of $1 billion for its second vintage private debt secondaries fund. Launched in 2019, the fund invests in secondary transactions across North America and Europe. The fund has deployed approximately 50% of its committed capital. More here

Brigade Capital, a New York-based manager, raised $1 billion for its first dedicated private credit fund. The opportunity fund less efficient segments of the market including lending to lower-to-middle market and non-sponsor borrowers. More here

Keppel, a Singapore-based manager, has raised $561 million for its third private credit fund. Keppel’s private credit strategy finances companies with defensive infrastructure-like operating businesses across a wide range of real asset sectors, including renewable energy, transportation, telecommunications,and logistics in Asia Pacific. The fund targets low- to mid-teens returns. More here

Patria Investments, a Latin America-focused manager, is launching the next vintage of its Latin America private credit strategy. The fund focuses on senior secured, US dollar-denominated loans structured with robust collateral, covenants, and cash-flow protections for mid-market and family-owned borrowers.The prior fund has already deployed more than 70% of capital into 14 transactions, generating a gross unlevered IRR of 15.6% with an average duration of 2.5 years.

Star Mountain, a U.S. lower middle-market manager, closed its second $286 million SBIC fund. The fund will make debt and equity investments in established service-oriented U.S. small and medium-sized businesses. More here

Janus Henderson and Victory Park Capital (“VPC”) today announced the launch of the Privacore VPC Asset Backed Credit Fund. The firm’s first interval fund aims to provide exposure to private asset-backed credit. More here

This newsletter is for educational and entertainment purposes only. It should not be taken as investment advice.

Every quarter, I summarise the 400+ pages of earnings transcripts from the largest managers. I do this for two main reasons:

1. It helps me understand the consensus views.

2. It brings to light unfiltered and occasionally provocative opinions.

This is the piece I look forward to writing every quarter. If you take away one useful insight, I’d really appreciate you forwarding this newslettter on.

Start with the software section if you’re short of time.

Only 1% of you will read the whole thing, but if you want to feel insufferably smug, I’d recommend printing this out, blocking 15 minutes in your diary, and giving it a proper read.

I’ve included a breakdown of key topics with links for the rest of you. Skim, skip, or dive in.

📚 Quotes of the Quarter

• Provocative Opinions

  • Tech lending has worked, continues to work. No, We don’t have red flags.

  • BDC Redemptions

  • If you see LTVs rise to 60%, that’s getting to the point where it calls into question the refinanceability of the loan.

  • The rotation out of private equity into private credit

  • Pebbles and Boulders

• Software

  • The four characteristics Ares looks for in software companies

  • What needs to happen for you to take losses in your software portfolio?

  • There is an enormous amount of equity cushion below these loans

  • Whether there is or isn’t an AI bubble is secondary to the question.

  • This monolithic view people are taking is gonna prove quite misguided

  • Our software portfolio companies generate significant cash flow and are growing faster than the overall credit portfolio

• Consensus Views

  • Deployment

  • Fundraising

  • Secondaries

  • Blackstone’s True North

  • Partnerships

  • 401(k)s

  • Portfolio

  • IG Private Credit

  • Real Estate

  • Defaults

  • Spreads

  Transcripts can be found here

Provocative Opinions

Tech lending has worked, continues to work. No, We don’t have red flags.

Blue Owl: “A point of fact, we don’t have yellow flags. We actually have largely green flags.

These are loans that are on average 30% of the value of the enterprise at the time of acquisition, with huge equity cushions.

Let’s be fact-based as opposed to headline-driven.

Since November 2022, the advent of ChatGPT as some kind of moment of AI’s arrival, since that time, the portfolio on average has grown revenue 40% and EBITDA 50%.

We’ll bring it much more current because we can all agree that in November 2022, it was doing poems, so maybe it didn’t matter.

But let’s bring it to this quarter. Fourth quarter, the revenue growth was 10%, and the EBITDA growth in those software names was mid-teens. That’s fourth quarter, quarter over quarter.

Stories don’t drive results. Results drive results. And as you can see, we have delivered on every one of our products. An absolutely top-level performance in both total return and in terms of nonaccruals and in terms of loss. Think about what we’ve run at an eight basis point net loss rate. And so these facts do matter.

↩ Return to index

BDC Redemptions

Ares

95% of all the investors are not looking for liquidity. So typically, what’s driving these redemption queues are a small handful of investors that have to continue to get back in the queue to the extent that they don’t get the liquidity they need. So you do tend to see overinflated numbers coming through the redemption queue as people are trying to get to the front of the line.

Blackstone

On BCRED, we did see this uptick in redemptions, which is not a surprise given all the headlines out there.

I think it is notable that the last two months, despite all of this, we have had $800 million of gross inflows each of the last two months.

On the institutional side, where they are looking at the fundamentals, some of the noise here is not as impactful. Their confidence in what we are doing and their need in many ways is going up.

Apollo

Even though with a small below-the-line redemption in the fourth quarter, net new assets were up every quarter last year, over $5 billion of net inflows.

Blue Owl

Limiting people can also be very negative.

The hard cap is a mechanical hard cap. Unless, you have the added flexibility to accommodate. And I put us in the latter category. We manage our businesses with very low leverage. Manage with a lot of liquidity. I say this with no arrogance. We’re very good at both the liability and asset side.

So there really was no reason to you know, not fulfill an investor’s request for their capital back.

And we see that as actually meeting investor needs. Being an investor-friendly and investor-focused firm, which we think leads to much quicker recoveries in fund flows, and leads to much better performance.

If you have plenty of capital as we did in these vehicles, then we fulfill those requests, that will lead to more wealth growth over time.

BlackRock

Redemptions were 4.1%, which was higher than recent quarters, but in line with the broader industry. Most BDCs posted positive flows.

↩ Return to index

If you see LTVs rise to 60%, that’s getting to the point where it calls into question the refinanceability of the loan.

Oaktree: “Generally speaking, today, outside of software, when there is an LBO, you’re seeing something like 50%-55% LTV at the max. You’re not seeing 70% or 65% LTV deals generally.

So what would happen, assuming these businesses aren’t burning a terrible amount of cash, and they get to within a reasonable timeframe of maturity, if once the sponsor, calls up the market and says, I want to refinance, and the response is going to be, well, you’re gonna need to put in more equity to kind of make this closer to a 50/50 LTV again.

The sponsors will then have to judge whether it makes sense to do that or not, based on the future sort of risk factors and earnings potential of the business, but also the stage of deployment of the fund that those investments are in.

If a fund cannot call capital, it can’t, then that sponsor can’t support the business.

If the fund is already a winner and has already returned a lot of capital, then it’s more likely to let go those straggler businesses.

And so they’re, the sponsor is less likely to support the business in that event.”

↩ Return to index

The rotation out of private equity into private credit

Apollo: “Most of the investments that are made into these private BDCs are de-risking for the individual making the investment.

They are not selling their treasury exposure.

They’re selling their equity exposure, and they’re making an intelligent decision that they can earn roughly long-term equity returns in first lien debt versus in equity.

The equity exposure and the pricing of what’s happened in software-related and other-related has been extreme. We’re talking, in some instances, quality companies down 50%-70%.

This is why people are in first lien to begin with.

In private markets, particularly private equity, software had been almost 30% of the market for a decade.

Software is still an amazing business, but you may not like the purchase price at which you entered because you get to now look at the same companies down 50%-70%.

And that’s the public companies. And I have to believe the private marks with leverage will go down equally as much.

↩ Return to index

Pebbles and Boulders

Apollo: “Much of the conversation in the last several weeks has been about a quick reset of prices in the public equity market and then the impact on non-investment-grade software lending, which has been particularly focused on the non-traded BDCs.

We put out a deck in December, and all the conversation recently has been about the narrow sector, the $2 trillion of private credit.

It’s really not touching the $35 trillion to $40 trillion opportunity in investment-grade private credit. In the last 18 months, short-duration IG vehicle, a strategy that we really started 18 months ago, is up to over $7 billion in assets.

The headlines are focusing on the small pond.

Taking a step back and really understanding how the big boulders are moving, this is the discussion when we talk about non-traded BDCs. That’s about pebbles.

What Marc is talking about is boulders. It’s much more thematic, and it’s really what’s driving our business over the next 5 and 10 years.”

↩ Return to index

Software

Software has wobbled over the last six months

Interestingly, the listed alternative managers have sold off too

That parallel move has sparked a wave of headlines linking the two.

With AI disruption the popular hook…

Here’s how the managers are addressing the narrative

The four characteristics Ares looks for in software companies

We don’t feel any differently this quarter than we did last quarter, despite all the noise in the market. The first thing to remind people is we started investing in the software space about fifteen years ago. From the beginning, the number one risk that we identified in the software space was technology risk, and obsolescence risk.

AI is probably the most disruptive technology risk that we could have imagined. And it absolutely is going to disrupt a lot of software companies, and I don’t want to sugarcoat it. But we still believe strongly that we’ve constructed a portfolio that will remain highly resistant to this risk.

I’ll just outline a few characteristics that we’ve always looked for in our software companies

1. The first thing is that we primarily look to invest in foundational infrastructure software for complex businesses. This is software that sits at the center of the technology stack and powers all core business systems. It’s the last type of software that a company would look to switch out because all of your downstream systems that feed off the software might also be at risk.

2. We’re also looking for software companies that collect and own proprietary data. And they collect this data and build this data over many years serving their customers. They use the data as a core part of their value proposition when they deliver the software. We call this a data moat. And it’s important to mention that AI is not a database. AI doesn’t house data.

3. We also are looking for software companies that serve regulated end markets like healthcare and financial services. There’s lots of these regulated end markets. Where the need for accuracy and auditing of information is really high. And the penalties for lack of compliance can be severe.

So John, you think about it. Jeffrey’s is not going to rip out its core infrastructure software and replace it with an AI-based solution anytime soon, in our opinion.

4. We’re looking for software companies that have very diverse customer bases. So even if some customers do switch to maybe an AI-generated software solution, others will remain and they create sort of this long tail of cash flow. That will survive and we really do not see quick and binary outcomes that occur when you have this kind of diversified customer base.

↩ Return to index

What needs to happen for you to take losses in your software portfolio?

Blue Owl: “What needs to happen for you to take losses in your software portfolio?

Over the last three years, the software index is up 23%. We’re all reading about and know what happened in the last year. It’s down 20% now in the last year.

But it’s up 23% over the last three years.

So if you think about that as some indicator of the vintage, a lot of big software deals PE firms did, Software equities are up.

We are a first lien lender in almost every instance we talk about software. We are, on average, around 30% loan to value.

So what’s happened objectively in the marketplace is since the vintage of those transactions, equity values on average are up 23%, but pick whatever number you want. We started at 30.

So now let’s answer your question. In order for us to have material losses you have to destroy 70% of the value of every one of these software companies.

We have 400 companies. And, of course, there are losses. Every quarter, we’re gonna have companies that go and get in trouble and companies that get out of trouble. And even trouble doesn’t mean we’ve lost anything. Means they might be struggling. We may have to own them. That’s already built into the calculation. And that’s what with all that said, we’ve been running eight basis points net.

↩ Return to index

There is an enormous amount of equity cushion below these loans

ARCC: “We are lenders to these companies with maturity dates. We’re sitting at the top of the capital structure. We have all the assets as collateral, including intellectual property. There’s lots of ways that we can look to recover our principal if things do start to get disrupted. And this is just a very different place to be sitting in the capital structure than sitting down in the equity.

If you look at some of the metrics on our software book, they’re extremely healthy. The book itself is also highly diversified. None of which is outsized in any way. These software companies are very large and established business The average EBITDA on our software book is $350 million. That’s above the average in our portfolio. The software book, the LTM EBITDA growth in the software book is growing at a faster rate than the overall average EBITDA on our book. Even through the recent quarter.

The loan to values and this is maybe one of the most important points. The loan to values on our software book our software loan book is 37% on average. That’s below the loan to values on our overall book there is an enormous amount of equity cushion below these loans.

It’s really hard for me to see a scenario where we would find any kind of real dramatic risk or change in our view toward those core enterprise software businesses.

↩ Return to index

Whether there is or isn’t an AI bubble is secondary to the question.

Blue Owl: “Google is raising its CapEx guidance to $175 billion, up from $93 billion. This is an enormous opportunity. We are in the premier position to be the premier provider of capital solutions to the hyperscalers.

Whether there is or isn’t an AI bubble in valuations is secondary to the question of whether people with some of the largest market caps, best credit ratings in the world are willing to commit to fifteen and twenty-year leases, which they are with us,

This is allowing us to deliver outstanding results for our investors in digital infrastructure, and in triple net lease. Remember our ORAD product as an example delivered an 11% return this past year.

All the headlines and noise aside, facts matter. And we’re delivering those results. We see that continued super cycle as an enormous opportunity. We know how to structure those leases so that they’re ironclad. We have a unique skill to actually build, develop, operate as people want it. We’ve done it with every one of the big hyperscalers in terms of being their partner.”

↩ Return to index

This monolithic view people are taking is gonna prove quite misguided

Blue Owl: “Software is an enabler. And the best companies are embedded in that position and have data moats and operating environments like health care, financial services with zero tolerance for risk environments.

They’re the adopters of AI. They’re the ones that are then turning around and saying, here, I can offer you an agentic solution to replace some of your human costs. I already have resident in your system and fully integrated into your daily behavior.

We understand the generic parts of software are vulnerable. We’ve studied our portfolios very carefully. We do not see any meaningful exposure to those more susceptible areas.

If you have the right software solutions, you’re gonna benefit from the adoption of AI.

This monolithic view and action people are taking is gonna prove quite misguided, and it’s gonna lead to a miss in significant opportunities. The book is strong. We don’t see meaningful losses. We don’t see deterioration in performance. And last point, the typical duration of a loan remaining in our books, let’s say, a software loan, is a few years. So when you have a business that is still growing double digits, and only a few years left and a 70% equity cushion, all we’re talking about is do we get our money back?

↩ Return to index

Our software portfolio companies generate significant cash flow and are growing faster than the overall credit portfolio

Ares: “Our software portfolio is highly diversified across many subsectors, with a very small percentage of the portfolio that we deem to have high risk of AI disruption. We lend at lower loans to value on software, which are in the high 30% range, compared to mid-40s LTV on the rest of the portfolio.

Our software portfolio companies generate significant cash flow, with EBITDA margins over 40%, average EBITDA over $350 million, and a growth rate that is faster than the overall credit portfolio over the past year.

↩ Return to index

Consensus

Deployment

KKR

We’ve also continued to lean into the opportunity within credit, deploying $44 billion in total over 2025. That’s up 14% compared to 2024.

Carlyle

Direct lending had a record quarter of originations. Our performance continues to be strong, with realized losses across the portfolio running at an average of just 10 basis points per year over the past decade.

Ares

After a slower first half, our U.S. and European direct lending deployment also increased sharply year-over-year, with investments into more than 240 different portfolio companies. Together, these two strategies represented just over half of our deployment for the year.

Apollo

If you look at the $305 billion last year, $245 billion was North America, $40 billion Europe, $15 million-$20 billion in Asia.

We’re taking this strategy global. When you think about why we were just in Japan, when you think about the Industrial Renaissance and that part of the globe, Asia Pac, along with how we’re focused on Europe, the answer to your question, big picture, is we’re going to take a very successful strategy of integrating origination to every aspect of our business.

We certainly have shown an ability to originate scale, but it’s really growth with intention. So I want to make sure that we’re not overemphasizing the growth in this point. We have a ton of robust yield, robust spread, and that’s what we’re trying to do.

Brookfield

Our objective is to deploy more than $100 billion of capital across the full AI infrastructure value chain, from land and power to data centers and compute capacity,

↩ Return to index

Fundraising

Ares

Our record, $113 billion in total fundraising for the year, was capped off by a record $36 billion in the fourth quarter. It's noteworthy that we surpassed our previous record by such a wide margin without our two largest private credit campaign funds in the market.

KKR

We come off a year where we had record capital raising, almost $130 billion, and we’re on our way to meaningfully exceed our $300 billion-plus fundraising target that we set out from 2024 to 2026. We feel really good about the trajectory on management fees.

Apollo

Of the $100 billion of organic inflows into asset management during the year, approximately 75% went to credit-oriented strategies and 25% to equity-oriented strategies.

↩ Return to index

Secondaries

Ares

Our secondaries group was a standout performer, with $12.9 billion raised and an increase in AUM of 45%. We ended the year with our secondaries business having nearly doubled in size since we acquired Landmark in mid-2021.

KKR

We have evaluated most of the secondary asset managers that have traded over the last decade. For a variety of reasons, we did not pursue any of those opportunities. However, we knew that when we found that right partner, the partner who could give us conviction that we could build a leading secondaries and solutions franchise, that we would be all in. We are confident that we have found that in Arctos.

Brookfield

In terms of secondaries, it is a space we track very closely. It’s growing rapidly. It’s a segment of the market where our expertise would be very clearly differentiating, and it would add an additional service that we could offer to our clients.

If we were going to do something, secondaries is probably near the top of the list, and we would focus on a platform that we thought would grow significantly as part of the broader Brookfield ecosystem.

Blackstone

Our secondaries platform saw a record year of deployment in 2025, and we see strong growth ahead fueled by the ongoing expansion of private markets.

Carlyle

AlpInvest has returned over $10 billion to our investors and invested a record $14 billion, highlighting both the breadth of the market opportunity and the scale at which the platform is operating.

We closed our largest ever secondary strategy at $20 billion, continuing to grow our co-investment platform and expanding our portfolio finance strategie

↩ Return to index

Blackstone’s True North

Blackstone

The reason we have grown so much over forty years is because we have not lost sight of True North, which is delivering returns for our customers.

I know everyone’s always like, oh, larger is worse.

I think in this environment, having more scale and more data is a meaningful moat.

We raised $71 billion of inflows in a quarter, $239 billion in a year. In what has still been a pretty tough environment, real estate lagging, the M&A and IPO markets not quite open yet.

The ability to write these very large checks allows us, in our minds and in the numbers, to outperform.

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Partnerships

Apollo

What we see is a number of the leading investors in the world moving to this notion of total portfolio approach. Total portfolio approach essentially opens up the debt and equity buckets of these institutions to private assets in competition for what has historically been 100% market share for public assets.

You saw the announcement with Schroders this morning which I expect to grow into a multibillion-dollar partnership. And PRIV, our ETF with State Street, now approaches $700 million in size and, more importantly, it's among the top performers of investment-grade ETFs everywhere.

Again, proving that private can be both liquid and illiquid, in this case, private investment-grade being fully liquid.

Apollo

We need to adapt our business to the ways traditional asset managers work.

Moving your business to daily NAV is a big deal for our industry. We are in the process of moving, particularly our high-grade credit business to daily NAV.

That is an unlock. Providing liquidity in markets, which many in our industry have spoken against, is an unlock for traditional asset managers.

I think traditional asset managers could be the single largest opportunity. I expect them to be among the largest buyers. Some of that will be in the existing mutual fund complexes and ETF complexes. Some of that will be through new products. And some of that will be through 401(k).

BlackRock

We think that private credit and building great public-private portfolios is a very important growth vector within private markets

We have over 20 conversations right now where we’re working on high-grade SMAs with leading insurers and building private high-grade portfolios.

We’d hope to start seeing deployments pull through the second half of 2026, and we’re really focused on three things with them.

1. The first is delivering better outcomes for our insurance clients by working with them to migrate something on order of 10% of their existing public fixed income assets into private high-grade. So think of a $700 billion base migrating to $70 billion on order of that in private high-grade.

2. The second is expanding high-grade mandates, meaning new assets and winning new assets with clients away from our existing book.

3. And the third is also pursuing strategic partnerships, minority investments to increase the pool of insurance assets managed here at BlackRock. It is a highly interactive day-to-day thing. So being able effectively to blend turnkey full-service capabilities for insurance companies, that’s a key competitive advantage for BlackRock.

Integrating public fixed income, private credit, Aladdin, accounting, middle office services makes working with BlackRock a performance enhancer, a scale enabler. So there’s no doubt that this space has become more competitive, especially in private high-grade. But I think our experience is that insurance companies want a full-service partner and that we’re well-positioned to play that role given our track record in public fixed income technology and world-class capabilities in private credit.

Blackstone

On the insurance side, the fact that investment-grade credit is at 71 basis points, which is the tightest level since 1998.

The fact that we can bring our insurance clients an extra 180 basis points, which is what we did in 2025, obviously motivates them in this area.

The key remains, can we deliver a durable premium to what you can get in liquid credit?

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401(k)s

Apollo

On the 401(k) specifically, the big volumes in 401(k), in my opinion, are not going to come until there is rulemaking or at least guidance that will give more clarity to the executive order that has come down.

Having said that, if I had to give you my email inbox, the amount of activity taking place in defined contribution in all its quadrants is just off the charts.

Every conference, every industry get-together is literally just overwhelmed with a discussion of private assets, and for very good reasons. The addition of private assets to a portfolio, given the length of time these employees will be in these plans, are 50%-100% better outcomes.

The other interesting piece of this is the opening of 401(k) to guaranteed income, particularly guaranteed lifetime income. We moved as a world for something that was really good for employees. We moved from defined benefit. Employees loved it. Guaranteed lifetime income. Companies hated it.

We then moved to a world of defined contribution where all of the risk was essentially on the employee and not on the company. Been great for companies but not so good for employees.

Most employees have not made a proactive investment decision within their 401(k) ever. They are guided by the alternatives provided by the trustees of that plan. I believe the world we’re heading to is more of a hybrid world. where we will end up with something that looks more closely to defined benefit but will not be provided by the employers. It will be provided by the marketplace. Right now, we’re in the baby steps phase where every day we’re making progress. It will be north of $1 billion this year.

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Portfolio

Ares

LTVs are near historical lows in the 40% range. Interest coverage continues to strengthen, and quarter-to-quarter non-accruing loan trends are generally flat, while remaining well below historical average levels.

As an example, in our U.S. direct lending strategy, portfolio company EBITDA growth was in the low double digits for the last 12 months, and net realized loss rates were essentially zero on a net basis, which is in line with our 20-year average of 1 basis point in annual losses.

Apollo

When you look at our software PIK exposure, negligible.

When you look at our software ARR exposure, negligible.

When you look at our pre-2021/2022 software exposure, negligible.

Blackstone

There will be losses in non-investment grade credit. The key, of course, is your portfolio healthy?

Last year, we actually saw high single-digit growth in the EBITDA of our borrowers. The loan-to-values are sub 45%, and rates are coming down. So the credit metrics are healthy. The key remains, can we deliver a durable premium to what you can get in liquid credit? And that we feel very confident in terms of, you know, sort of outlook.

Blue Owl

Weighted average LTVs remain in the high thirties across direct lending, and in the low thirties, specifically in our tech lending portfolios. On average, underlying revenue and EBITDA growth across our portfolios was in the high single digits.

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IG Private Credit

Blackstone

We now manage $130 billion of IG private credit, up 30% year over year.

Why is investment-grade private credit growing so quickly? Two main reasons:

1. First, corporate investment-grade bond spreads are at their tightest level since 1998. We have been seeing insurers and now some pensions and sovereign wealth funds looking to earn materially higher spreads at the same or lower risk level.

2. Second, the build-out of AI infrastructure requires a massive amount of private debt capital for the construction of fabs, energy supply, and data centers.

↩ Return to index.

Real Estate

Blackstone

We see a number of positive signs which point to a better year ahead.

These include the sharp decline in construction starts, which have fallen to the lowest level in more than twelve years in the US, in both logistics and multifamily, our two largest sectors in real estate.

Continued growth in debt availability and declines in the cost of debt, a pickup in transaction activity, and now an improvement in logistics demand with our US platform reporting record leasing activity in Q4.

Brookfield

Across the highest quality office in global gateway cities, there is very low to no new supply coming on market. New supply is not expected for you know in large scale anytime soon, and yet tenant demand continues to grow.

The number of tenants we’re actively engaged with, who have very large requirements for high-quality space. We you know we signed two of the largest leases in downtown last year.

You look in London, one of the tightest markets globally now, setting record rents with each lease we sign in the city. Tenant demand in Canary Wharf, the strongest we’ve seen. So those are the underlying drivers for the growth in the NOI in office. Now, as we move those tenants in and we vacate space, it takes time to come through the numbers, but the underlying momentum and the valuation appreciation is coming through the numbers.

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Defaults

Blackstone

We think some of the headlines highlight isolated stress points rather than painting the full picture. We generally see stable credit conditions across the portfolios that we’re managing,

Context is critical. Like defaults and losses in the non-IG direct lending to corporates have been abnormally low for years, following low rates. Default rates in the broader leveraged loan market are averaging slightly below the long-term average at 3%. And in economic slowdowns, like default rates rose to 4-5%, the all-time peak in the GFC hit 15% on an issuer-weighted basis, and so direct lending defaults are rising, but they remain in historical ranges, so I think we see this period, as do many of the other firms, as a period of expected catch-up following a long period of very low defaults.

When we look through the universe of BDC loans, the $400 billion across 20,000 loans sitting in the valuation databases, we see non-accruals that are inside the historical average. We see PIK as a percentage of total interest income in line with historical norms, recovery rates that are in line with historical norms.

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Spreads

Oaktree

While large cap activity accelerated in the December quarter, middle market volumes were still below historical averages. Since the Fed rate cut in September, we have seen greater price discipline in the market and believe that spreads in private credit have now bottomed out at SOFR +450-475 basis points.

Oaktree

Direct lending transactions continue to offer an approximate 150 basis point spread premium relative to broadly syndicated loans with similar credit quality.

PIK interest remains prevalent in direct lending transactions, underscoring sponsors’ preference for flexible capital structures.

We continue to stay extremely disciplined in our use of PIK. In the first quarter, PIK, as a percentage of adjusted total investment income, was 6.3%, which is below the public BDC industry average.

↩ Return to index

Thanks again for reading. Let me know if you find these posts useful or how I can improve it for next quarter.

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This newsletter is for education or entertainment purposes only. It should not be taken as investment advice.

📕 Reads of the Week

Market Updates

• I sat down with The Credit Clubhouse to discuss what’s happening in private credit right now.

  • 👉Listen here.

• Pitchbook: The Rise of SRT Investing. Link

• JP Morgan: How should investors allocate to private credit today?

  • Place greater emphasis on selectivity and risk management than in the past. Reducing concentration risk, avoiding aggressive leverage structures, and maintaining diversification across vintage years.

  • The gap between top-quartile and bottom-quartile managers is already wide, and there is little reason to believe it will narrow. On the contrary, as weaker loans come under pressure, differences in portfolio construction and risk discipline will become more visible.

  • Investors should broaden beyond direct lending. Direct lending remains the core of the asset class, but it is no longer the only source of attractive risk-adjusted returns.

  • 👉 Read JPMorgan’s report here

• Muzinich: The Growth of European Markets. Link

• Debt Wire: European Direct Lending Rankings. European direct lending market shatters records for deployment. Link

  

Alternative Managers Are All Talking About Asset-Based Finance

• Nearly 7 out of every 10 earnings calls mention ABF, up ~14x in five years

  • 👉 Read the full report

Manager Updates

• Covenant Lite: How Ares Built Its ABF Platform. Link

• **RECOMMENDED LISTEN**: Jon Gray sits down with Morgan Stanley Co‑President Dan Simkowitz to unpack two out‑of‑consensus decisions that shaped his perspective.

  • 👉Listen here

• Dawson Partners, formerly named Whitehorse Liquidity Partners, is launching its inaugural credit secondary strategy. Link

Partnership Updates

• HSBC Asset Management partnered with Admiral, a UK insurer. Admiral will make an investment in HSBC’s UK Direct Lending Fund, as part of the partnership. Link

• Apollo partnered with Schroders, a $1 trillion+ UK asset manager, to develop a range of wealth and retirement investment solutions aimed at enhancing client choice and outcomes. Link

• P10, a Dallas-based manager, entered into a definitive agreement to acquire Stellus Capital Management, a U.S. direct lender, for $250 million. Link

Dispersion Is Back

Oaktree’s latest report is a reminder of why we shouldn’t be looking at averages.

Here are my highlights.

👉 Read the full report here

We’re entering a new era of dispersion

Behind buoyant index averages are sharply bifurcated cohorts of winners and losers.

• Equities are flying high but remain mostly propelled by a handful of AI superstars.

• Credit appears healthy in aggregate, but there’s a notable tail of unloved names.

• Economic growth looks robust but masks clear divergence in the experience of high- and low-income consumers, a phenomenon now termed the “k-shaped economy.”

These dynamics serve as a reminder that averages shouldn’t be relied upon in a sophisticated investment process.

During the low-interest-rate environment of 2009-2021, credit was “bunched up,” with limited dispersion around the index spread. Now yields are much healthier, but a tougher backdrop means we’re returning to a world where mistakes are punished – and potentially capitalized on. As Howard Marks recently wrote, the next phase is set to be more “interesting.”

Mind the Spread Gap

“Tight spreads but good yields” has become the familiar refrain. While that’s broadly accurate, looking under the hood gives a more nuanced perspective.

The senior loan index currently offers a yield of 7.9%, but BB-rated loans are at 5.7% and CCCs are at 16.1%!

It’s a similar story in the high yield bond universe, where index dispersion is the highest on record.

So why are unloved names falling so far through the cracks?

• Weak credit documentation has heightened fears of poor recoveries, meaning struggling names can face immediate selling pressure. The data justifies this fear. While payment default rates remain low, recoveries are well below their long-term average: the recovery rate on first-lien loans stands at 37.7% versus the 25-year average of 62.3%.⁹

• In the case of broadly syndicated loans, the dominant buyer – CLOs – has limited appetite for stressed loans. These managed vehicles must meet strict tests, including on CCC exposure, and must be relatively free of stress to secure economical financing from liability investors. This leads to structurally reduced demand for stressed credits.

• Aside from technical pressure (i.e., fewer willing buyers for structural reasons), some credits are trading at elevated spreads because they’re fundamentally troubled. A good portion of CCC-rated credits are genuinely under significant strain: 40% of CCC-rated borrowers have operating cash flow coverage below 1.0x.

Combine these factors, and it’s clear why certain names become pariahs. Encouragingly, part of the problem is that solid yields on performing names mean certain investors don’t need to reach for risk: performing credit investors can construct high-income portfolios without purposefully buying heavily discounted names.

Performing and PIKing

In the private credit world, dispersion is harder to map out. Without a developed secondary market, true price discovery is limited. However, it seems private credit loans are also increasingly bifurcated into fundamentally solid and fundamentally struggling, reinforcing the importance of selectivity.

Earnings have been generally strong, with EBITDA growth of over 8% YoY in 3Q2025, and net leverage has trended down over recent quarters.

Earnings Have Been Strong…

Default rates also remain very low, but there’s some stress under the surface, manifesting most evidently in the form of a reliance on payment-in-kind (PIK) interest as opposed to cash payment.

Roughly 20% of private loans have PIK optionality and over half have ended up taking the option.

But the good news is the instances where PIK emerges after the origination of a deal due to borrower stress remain relatively limited, representing around 4-5% of private loans.

But PIK Reliance Presents a Concern

What Next?

A dispersed market requires a nuanced management approach, rewarding both prudent risk control and intrepid opportunism. Relying on index averages won’t be enough, as the performance of assets within the same universe drift apart.

Part of the conundrum, as always, will be delineating between assets that are:

(a) unreasonably discounted due to psychological aversion and

(b) appropriately discounted because they’re fundamentally flawed.

👉 Read the full report here

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💰Fundraising News

Eurazeo, a Paris-based manager, closed its $570 million private debt continuation vehicle supported by Pantheon. The vehicle will purchase of a portfolio of performing European senior credit assets originating from Eurazeo’s legacy private debt platforms. This acquisition will also be supported with leverage. As part of the structure, Eurazeo will continue to manage the assets, ensuring continuity in portfolio monitoring and strong stakeholder alignment, while Pantheon will provide additional capital, giving Eurazeo new lending capacity to support European middle market companies. More here

Power Sustainable, a Canadian alternative manager, closed its $1 billion infrastructure credit fund. The manager lends across the infrastructure sectors, including energy and decarbonization, transportation and logistics, digital, social, utilities, and recycling. More here

LBP AM, a European alternative manager, closed its $600 million Infrastructure Debt Climate Impact Fund. All investments are directed towards low-carbon or decarbonising infrastructure that contributes to climate change mitigation. More here

Ruya Partners, an Abu Dhabi-based boutique private credit firm, is raising $400 million for its latest fund. The fund will focus on middle market lending in Saudi Arabia and the UAE. More here

This newsletter is for educational and entertainment purposes only. It should not be taken as investment advice.

📕 Reads of the Week

Manager Updates

• Three Reasons why Jon Gray and Blackstone are “super pumped” about Q4. 🚀

  • The deal engine is back. M&A volumes ran ~2.5x higher, and the IPO window has reopened.

  • A massive capex wave is underway. Data centers and energy infrastructure will absorb enormous amounts of long-duration investment.

  • Alternatives are taking market share. Insurance, pension, and retail demand continue to compound as investors look beyond traditional public markets.

    • 👉 Watch here

• Franklin Templeton is merging its European private credit unit, Alcentra, into Benefit Street Partners. Alcentra will wind down its direct-lending franchise and shift focus to managing existing assets. Alcentra will continue to run structured credit and special situations, all of which will now sit under the BSP banner. Link

• The FT’s insight piece into Jeremy Coller. The vegan activist who sold Coller Capital for $3.7 billion. Link

Market Updates

• Crescent Capital Direct Lending in the U.S. Middle Market: Stability Amid Uncertainty

  • Deal flow normalization continues, but quality remains bifurcated.

  • The best-in-class borrowers, those with strong recurring revenue, cash flow visibility, and defensible market positions, continue to attract competitive terms.

  • In contrast, second-tier credits are struggling to clear without structural enhancements or pricing concessions.

  • As a consequence, Private Equity firms have increased holding periods (See below)

  • 👉Read the full report here

• 🎧 The View From Apollo: The Convergence of Private and Public Credit. Link

• Antares 2026 Outlook. Link

  • (Nick Reminder: Interesting BDC Charts to review quarterly)

• KKR: Capital Market Assumptions. Link

• Invesco: The case for the European upper middle market

  • Read the report here

Not private credit, but worth a mention:

• Carlyle: Bubbles as a feature, not a bug. Link

• Why Private Equity Is Suddenly Awash With Zombie Firms. Link

Partnership Updates

• Citi announced a partnership with Blackstone, Blue Owl, and KKR, to launch evergreen funds for high-net-worth clients in Singapore and Hong Kong. Citigold Private Clients in Asia and the Middle East will gain access to private markets, including equity, credit, infrastructure, and real estate. These alternative asset classes have traditionally been reserved for institutional investors. More here

• Wells Fargo and Centerbridge Partners have invested more than $7 billion since their partnership launched less than two years ago. For 2025 specifically, it closed 18 transactions totalling ~$4 billion. More here

The State of Private Credit Secondaries

Credit secondaries have had a busy few weeks:

• Crescent Capital closed its $3.2 billion private credit continuation vehicle. The transaction was led by Pantheon and is the largest credit continuation vehicle transaction in the private credit secondaries market to date. More here

• Ares raised $7.1 billion for its Credit Secondaries fund. ACS is the largest dedicated institutional credit secondaries fund globally based on LP equity commitments. More here

• PGIM announced plans to deploy up to $1 billion over the next two years into private credit secondaries.

In light of this, I’ve pulled together the key takeaways from three reports that assess the current state of credit secondaries.

Read the reports below:

• 👉 Evercore

• 👉 Jefferies

• 👉 Pitchbook

Credit secondaries volume has set new highs every year post 2020

• While LP-led transactions have historically dominated, GP-led credit secondaries are taking a larger share as sponsors use secondaries as a repeatable tool for liquidity and portfolio management

• In 2025, GP-led activity accelerated materially, representing ~60% of total credit secondaries volume, reflecting increased use of structured solutions to address liquidity, fund optimization, and portfolio repositioning needs

Strong Pricing Into 2026

• Pricing remained in line with 2024 levels at ~91% of NAV

Credit Pricing Recovery: +1,400 bps Since 2023

• Credit has seen meaningful discount improvements since 2022, unlike Venture and Real Estate.

Read the full reports

• 👉 Evercore

• 👉 Jefferies

• 👉 Pitchbook

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Golub: Redefining opportunistic credit

I’ve previously talked about 2025 being the year of opportunistic credit. Golub’s latest report adds useful clarity on how to think about this opportunity set. Here are my three highlights.

• 👉 Read the full report here

Liquidity mismatches and funding challenges are always occurring

• While periods of extreme market dislocation or distress often generate attractive opportunities, such moments are rare, difficult to predict, and typically don’t last very long.

• The reality is that liquidity mismatches and funding challenges are always occurring in the credit markets, even during normal conditions.

• Recent examples include NAV lending, junior capital solutions, and SRTs.

Longstanding relationships and a deep understanding of each participant’s needs give us an edge.

• The best opportunistic credit managers sit at the centre of a diverse ecosystem that includes private fund GPs, portfolio companies, direct lenders, LPs, banks and other trading partners.

• Often, the key investment advantage comes not from just analysing the numbers, but from knowing the people and the businesses.

The middle ground has many appealing characteristics,

• The “opportunistic” space is a broad and highly diverse zone stretching from senior lending at the top of the capital stack all the way to common equity and warrants at the bottom - and almost everything in between.

• This middle ground has many appealing characteristics, with its performance delivering an attractive blend of equity upside and contractual yield, typically with an internal rate of return (“IRR”) in the mid-teens.

• The opportunistic arena rewards agility, relationships and structuring expertise more. The deals we pursue often do not fit neatly into the mandates of traditional private equity or direct lending funds, which is why this strategy offers such value to investors looking to diversify.

• The result is a diversified hybrid of credit-oriented investments with a lower correlation to other private market exposures and a comforting margin of safety (thanks to that contractual income component).

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💰Fundraising News

Tree Line, a US-based manager, closed its fourth flagship fund with $1.1 billion in total capital commitments. The direct lending fund is focused on lending to US lower-middle-market companies. The firm provides first lien term loans and equity co-investments to companies with between $5 to $30 million of EBITDA in North America in transaction sizes up to $150 million. More here

Investec, a UK-based Alternative Manager, announced a final close of over $700 million for its second private debt fund. The fund will lend senior secured and subordinated debt to private equity and corporate-backed businesses with EBITDA between €3 million and €50 million. The fund’s primary geographic focus is the UK, Ireland, Benelux, and DACH region. More here

Ambienta, a sustainability-focused manager based in Italy, raised more than $600 million for its inaugural private credit fund. The fund is focused on lending to environmentally sustainable mid-market companies in Europe. The fund has already deployed €300 million across 13 portfolio companies, with investments spanning areas such as energy infrastructure, water, and food ingredients. More here

Alantra, a Spanish Alternative manager, launched its second European real estate debt fund, with a target size of €200 million. The fund will finance European mid-market real estate. More here

XSML Capital, a Netherlands-based lender, closed its $142 million African Rivers Fund IV. The fund finances SMEs in African frontier markets with loan sizes between $300,000 to $10 million. Investments to date are concentrated in the DRC (47%), Angola (22%), Uganda (17%), and Zambia (14%), across manufacturing, retail, beverages, food processing, and the pharmaceutical sector. More here

This newsletter is for educational and entertainment purposes only. It should not be taken as investment advice.

We’re starting 2026 with the kind of deal activity the market’s been hoping to see

📕 Reads of the Week

Deals of the Week

• EQT is acquiring Coller Capital for $3.2 billion. The transaction shows the strategic importance of secondaries, a market that grew 41% in 2025, and is expected to more than double by 2030.

  • 👉 [More here]

  • See this week’s fundraising for more data on the growing secondaries.

• CVC is acquiring Marathon for up to $1.2 billion. The transaction significantly expands CVC’s access to the large and fast-growing US market. It will increase CVC Credit’s Fee-Paying AuM €61 billion. It also helps CVC close in on its plan to deliver double-digit growth in FPAUM to €200bn by 2028.

• 👉 [More here]

Manager Updates

• Blackstone’s Michael Zawadzki on How Private Credit Got so Big

  • 👉 [Listen here]

• PGIM announced an expansion into private credit secondaries, with plans to deploy up to $1 billion over the next two years into the asset class. It will focus on sourcing opportunities in direct lending as well as in opportunistic credit. Link

• Partners Group delivered double-digit AUM growth in 2025, increasing AuM by 14% to $185 billion. Link

• BlackRock Extend Asia Credit Fund by Another Year. Link

• Blackstone’s 2026 Investment Perspectives

  • Over the past twenty years, the S&P 500 posted negative annual returns three times; in each of those periods, private credit significantly outperformed equities and leveraged loans, twice delivering positive absolute results

  • 👉 [Read here]

Davos Updates

“We have built the capability in private credit over these last couple of years and its a significant contributor to our balance sheet. It’s one of the best performing asset classes for us. There are more headwinds in the space, but if you are with the right partner we remain quite bullish on this space.”

Khaldoon Al Mubarak, CEO of Abu Dhabi’s Mubadala Investment Co.

• How Robust Is Private Credit?

  • Panel Featuring:

    • Ontario Teachers’ Pension Plan

    • GoldenTree Asset Management

    • Bain & Company Inc

    • S&P

    • 👉 [Learn more here]

“We have got about $140 billion of private credit sitting in our businesses and we aim to double that. This is a really important source of financing for our client base and they will continue to use this.”

Richard Gnodde, Goldman Sachs International Vice Chairman

Partnership Updates

• AIG and CVC announced a partnership to allocate $2 billion to SMAs and Funds managed by CVC, with an initial $1 billion to be deployed through 2026. The SMAs will provide AIG with access to diversified private and liquid credit strategies. Link

• Castlelake and LendInvest, a UK-based real estate lender, launched a new funding partnership. As part of the agreement, Castlelake will purchase up to £250 million in loans from LendInvest. The arrangement increases LendInvest’s capacity for larger, more complex loans – including the ability to fund individual projects up to £15m – while simultaneously unlocking a greater capability in regulated bridging loans and other areas such as Development Exit financing. Link

• Partners Group and Barings closed a $365 million investment in Partners Group Private Loans, an evergreen private credit vehicle focused on direct lending opportunities globally. Barings Portfolio Finance provided the entirety of the investment‑grade rated loans. Link

Blackstone: Real Estate Enters the Next Phase of the Cycle

Commercial real estate is moving into a new part of the cycle, creating what we believe is one of the most attractive entry points for investors in recent years.

Compelling Entry Point

• Real estate values peaked in 2022 before declining over the following two years, weighed down by rising base rates and persistent challenges in the office sector

• By early 2024, we began to see clear signs that values were stabilizing.

• Today, real estate remains very attractively priced on a relative basis: values are only 7% above their trough, compared to equities and fixed income, which are hovering near peak levels.

Post-Downturn Playbook

• In the prior two downturns private real estate delivered double -digit average annual returns over the following five years as fundamentals and capital markets recovered.

There are a couple of reasons we believe today is a compelling moment to be deploying capital into real estate.

Collapsing Construction

• Blackstone is seeing a dramatic decline in new supply across virtually every sector globally, down 60%+ across our major US sectors.

• This is the #1 reason we are bullish on real estate today: lower supply generally leads to stronger rent growth and higher values.

Capital Markets Are Strengthening

• Real estate values are heavily dependent on debt financing, and the debt market is rapidly improving. The overall cost of debt capital has declined ~40% from the peak in 2023.

• Blackstone is seeing improved financing translate into more bidders showing up to buy assets, and we expect this to continue.

With both long- and short-term interest rates declining, real estate’s biggest headwind in recent years is becoming a tailwind. Declining rates have historically led to significant outperformance for real estate.

So, Where Are We Focused on Deploying Capital in the US?

• 👉 [Find Out Here]

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💰Fundraising News

Churchill Asset Management, the U.S. affiliate of Nuveen, raised over $16 billion for its flagship senior loan strategy. Churchill’s senior lending strategy lends first lien and unitranche financing to sponsored U.S. middle market companies. More here

Crescent Capital, a Los Angeles-head quartered manager, closed its $3.2 billion private credit continuation vehicle. Crescent Credit Solutions VII will acquire a portfolio of performing sponsor-backed loans and other equity interests from Crescent Mezzanine Partners VII, a 2016-vintage fund. The transaction was led by Pantheon and is the largest credit continuation vehicle transaction in the private credit secondaries market to date. More here

Twin Brook Capital Partners $3 billion continuation vehicle led by Coller Capital previously held this record. More here

PGIM announced an expansion into private credit secondaries, with plans to deploy up to $1 billion over the next two years into the asset class. It will focus on sourcing opportunities in direct lending as well as in opportunistic credit. More here

Dolomite Capital, a London-based credit manager, launched following a spin-off from Taconic Capital Advisors. The firm focuses on on complex mid-market European opportunistic credit opportunities and is supported by $200 million in seed capital from Stable Asset Management for a new evergreen fund. More here

Lendable, a London-based emerging markets lender, confirmed the the first close of its two new blended-finance funds: Lendable MSME Fintech Credit Fund 2 (LMFCF2) and Lendable Transportation and Energy Fund (LTEF), raising more than US$300 million and on track for final close in excess of US$500 million. More here

CIBC Asset Management, the subsidiary of the Canadian bank, launched its Diversified Private Credit Fund. The institutional open-ended solution offers access to a portfolio of senior secured, floating-rate loans sourced through CIBC’s origination network. Leveraging CIBC’s established bank lending platform, the Fund provides exposure to direct and specialty lending, including asset based lending in real estate and infrastructure. Link

This newsletter is for educational and entertainment purposes only. It should not be taken as investment advice.

Reflecting on 2025

I spent last weekend delivering humanitarian supplies to Ukraine with a few colleagues from work. The three-day drive across Europe gave me plenty of time for reflection. Somewhere between rating lane discipline, sampling half of Germany’s deli counter, and the occasional beer 🍻, I tried to make sense of 2025 and frame my thinking for 2026.

I also picked my Fund of the Year. A strategy that, in my view, best captures what 2025 rewarded and what 2026 will demand.

Private credit is getting the same noise that private equity got 20-plus years ago.

We are living through the ‘mediazation’ of financial markets.

The big questions for private credit are: will increasing competition mean that differentiated returns go down? And, can managers continue to scale at this rate?

KKR thinks that these problems aren’t unique and have been addressed before.

They’ve found that if you go up in size, you build different capabilities, you look at adjacencies, there are lots of different ways to continue to grow.

And, in the grand scheme of the capital markets, the sub-investment grade portion of the $51 trillion U.S. credit pie is small.

The rotation into private credit is a rotation out of equity.

This is fundamentally what people fail to understand. The rotation into private credit is a rotation out of equity. That is what investors are doing. That is what Apollo observe. They are making a decision to take risk off because they perceive the ability to earn long-run equity returns in first lien debt, top of the capital structure, as an attractive opportunity.”

The M&A Gridlock

Buyers and sellers could not agree on a clearing price for their companies.

With a drastically higher discount rate, the valuations portfolio managers believe their assets are worth have been challenged: potential sellers refuse to compromise while potential buyers aren’t eager to increase their bid.

Because of this deadlock, hold periods have increased, with almost 30% of portfolio companies in 2024 having been held for over seven years.

Over 60% of buyout deal returns in the low-interest-rate era were attributable to broad market multiple expansion and leverage.

With these levers challenged, 2025 was the year of the opportunity fund.

🏆 Nick’s Fund of The Year

If 2025 was the year of the opportunity fund, KSL’s $1.4 billion Tactical Opportunities II (Link) is one of the best examples.

In the lead-up to this post, I had the opportunity to speak with Dan Rohan, Head of KSL Tactical Opportunities. A big thank you to Dan and his team for their time and insights.

I covered over 200 fund announcements in 2026. While Oaktree’s $16 billion Fund XII attracted the headlines, KSL’s fund stood out to me for three reasons.

Three reasons why KSL Tac Opps II is my fund of the year

1) Counter Positioning

“For your performance to diverge from the norm, your expectations – and thus your portfolio – have to diverge from the norm, and you have to be more right than the consensus. Different and better: that’s a pretty good description of second-level thinking.” Howard Marks - It’s Not Easy

KSL invests in travel & leisure with more than three decades and over $25 billion dedicated to this sector exclusively. Generalising against this sector focus will lead you to question how resilient a strategy focused on this could be. However, as I’ve learnt this year, Generalization errors catch the unwary investor too focused on the big picture and not enough on the details.

KSL isn’t a travel generalist.

There’s a further tailwind supporting these consumers, and that is the Great Wealth Transfer. Over the next two decades, $100 trillion of wealth will be transferred from boomers to younger generations. For perspective, that’s more than 50 years’ worth of what Americans spend on leisure each year. The beneficiaries of this wealth are more experience-led, and they’re exactly the customers KSL plans to serve.

2) Cornered Resource

“A cornered resource exists when businesses have preferential access to scarce assets (investments, relationships, talent, data and contracts) that others can’t replicate quickly. Rivals can’t realistically copy or obtain it fast enough to neutralize your advantage.” Hamilton Helmer

KSL has made 200 investments in 600 individual assets. This gives them access to:

• 50,000 employees

• 30,000 skiable acres

• 7,000 marinas slips

• 1,300 resorts

• 100 FBOs

The data generated from this helps KSL see trends early, make higher-conviction investment decisions, and, importantly, provides a weather barometer when things shift.

Built patiently over 30 years, this platform creates a durable informational and relationship advantage that continues to compound with each new additional investment.

3) Opportunistic Capital

This final point is the most decisive, and it’s why KSL’s Tactical Opportunities Fund II is my fund of the year.

Higher interest rates have created an M&A gridlock. Sponsors and owners don’t want to sell at the current valuations. Despite optimism going into 2026, this trend will continue until either interest rates decline meaningfully or earnings increase meaningfully. This will take more time.

While the market waits for valuations to clear, owners require transitional capital. This could be to merge platforms or to renovate their hotels. Traditional lenders will typically provide the first 40%, but to execute the transition successfully, owners need a partner willing to fund to ~75%.

These opportunities are KSL’s Tac Opps calling card.

Working alongside owners, KSL structures patient, flexible solutions that “speak for” the entire stack, often blending some level of current pay, PIK, and warrants. The result is an aligned platform, often with KSL providing active operating support alongside the board and management.

It’s important to highlight two additional points about the Tac Opps strategy. Everything else remains unchanged, same consumer focus, same sector focus, simply different places in the caps stack. Secondly, this isn’t predatory capital; this is being a partner to solve an owner’s need.

A few comments on data centers

Generating excess returns in this sector won’t be especially easy

The spectrum of risks will vary from VC-like risk in the earliest stages to re-leasing and technology obsolescence risk in the later stages of these assets. Therein lies the reason to proceed with caution.

Ares believes that some of the greatest mistakes will be made in this sector will be associated with hybrid-risk transactions.

Traditional, “pure-play” investors may find themselves ill-equipped to underwrite all facets of a hybrid-risk transaction.

Focus on getting leased and repaid. Not on guessing what the world looks like at lease renewal.

There’s a difference between a principal’s mindset and an agent’s mindset.

If you are an agent, you are originating anything to do with AI and data today. You have 100% confidence that you can distribute the risk.

If you have a principal’s mindset and you’re going to own the asset for a long period of time, you look at everything through a different lens.

So, if you now drill into the notion of AI data centers, what are we really talking about? Anywhere we go in the world for heavy users of compute, you ask them, what do they need to move faster? And the answer is always the same, more compute. When are they going to get more compute? No time soon, because there are natural limits. There are energy limits, there are regulatory limits, and there are zoning limits. (And everything else..)

What does that tell you as a credit investor? It tells me that the risk I’m prepared to take is lease-up risk. The risk I’m not prepared to take is renewal risk.

The chart of experts’ projections of energy usage in 2030 is like a child throwing darts. If the experts have no idea of energy use, much less chip use, compute, the impact of quantum, do I really want to, with my credit hat on, take renewal risk? No.

This is now the bifurcation of how you think about AI and data.

And so, let’s make sure we’re looking at this through the right lens. Credit is credit, and the best you can do is get paid back. Therefore, it is not a great place to speculate on renewal. There’s plenty to do without taking renewal risk.

Equity has the volatility of upside and the chance of losing everything. And, yes, you can lose it all, and prices are high, and Marc Rowan think there will be both great fortunes made and lost in the equity of data centers.

Looking into 2026

Defaults are a normal part of life

The truth is that there are always defaults... Over Howard’s 47 years in the high yield bond market, more than 2% of all bonds by value have defaulted in a typical year, and many more during crises.

If you apply that percentage to the number of sub-investment grade issuers, which runs in the thousands, it shouldn’t come as a surprise if there are a few dozen defaults in a normal year…

The credit spreads people care about so much are there for a reason.

Sub-investment-grade debt entails credit risk

Focus on what could go right

It’s all about alpha

Direct lending is no longer exotic. While performance across the asset class has been strong over many years, largely supported by accommodative monetary policy, it’s misguided to believe that a rising tide will continue lifting all boats.

One defining feature of the US corporate direct lending market is its fragmentation:

• Different sectors,

• Different sponsors

• Different sizes

• Different structures and solutions

The percentage of portfolio holdings that managers have in common remains extremely low. Simply put, not all direct lenders are alike.

As default rates and other signs of stress emerge across this asset class, the impact is anything but uniform across companies and managers.

Consistent historical returns may have fostered a perception of private credit as a beta-driven market, but looking ahead, alpha will be the key differentiator.

💰Fundraising News

Ares raised $7.1 billion for its Credit Secondaries fund. The fund will build a portfolio of senior secured private credit loans by investing across LP-led and continuation vehicle transactions in collaboration with leading asset managers. Ares believes that ACS is the largest dedicated institutional credit secondaries fund globally based on LP equity commitments. More here

Oaktree launched its Asset-Backed Income Fund, OABIX, with $400 million in commitments. The evergreen interval fund will provide U.S. individual investors with access to Oaktree’s asset-backed finance. The fund invests across sectors, collateral types, and investment formats. More here

Invesco launched its European Upper Middle Market Income Fund. The evergreen strategy, offered under the ELTIF 2.0 regulation, invests in a portfolio of European upper middle market, senior secured corporate loans. The fund offers a monthly subscription with quarterly redemptions. More here

Jadwa Investment, a Saudi Arabia-based manager, announced a first close of $80 million for its flagship private credit fund. The fund invests across the Gulf Cooperation Council (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, UAE). More here

Nassau Global Credit, a New York-based manager, launched its $400 million Credit Opportunities strategy. The strategy will invest in performing, opportunistic, and structured credit. More here

This newsletter is for educational and entertainment purposes only. It should not be taken as investment advice.

📕 Reads of the Week

Market Updates

• Blackstone on Real Estate’s Next Phase. Blackstone is seeing a dramatic decline in new supply across virtually every sector globally, down 60%+ across major US sectors. This is the #1 reason to be bullish on real estate today: lower supply generally leads to stronger rent growth and higher values.

  • 👉 [Learn more here]

• Coller Capital on credit secondaries continued growth. Coller saw $18-20bn+ in deal volume in 2025. That expansion will likely continue in 2026. Historically, LPs avoided selling credit positions due to steep discounts driven by mismatched cost of capital. Today, dedicated credit secondary funds have reshaped market dynamics. First-lien loan portfolios now trade in the 90s (i.e. approximately 90% of full value) with some clearing at par, making liquidity decisions far less punitive.

  • 👉 [Learn more here]

• Arcmont on how direct lending took off in Europe.

  • 👉 [Learn more here]

  • Largest European direct lending funds in 2025

• Fewer private equity portfolio companies filed for bankruptcy protection in the US in 2025 as sponsors opted for out-of-court restructurings to keep distressed businesses out of the spotlight.

  • 👉 [Learn more here]

US Private Credit Monitor

• Direct lending volume dipped in Q4. Even with November’s mega-deals, Q4 was the weakest quarter of 2025 by volume and deal count.

• Despite the drop in lending in 2025 vs 2024, volumes remained historically strong. 2025 ranked as the second-busiest year for direct lenders in at least eight years.

• Credit spreads remain compressed but steady. Fourth-quarter spreads held steady, with a median of S+475 unchanged from the third quarter.

  • 👉 [Learn more here]

Manager Updates

• What’s Oaktree Reading? 2025 Year-End Book Recommendations

  • 👉 [Learn more here]

Partnership Updates

• Blackstone announced an aircraft engine leasing partnership with Willis Lease Finance Corporation, with plans to deploy over $1 billion to acquire both engines and select aircraft. The partnership was made through Blackstone’s Credit & Insurance arm. Link

• Ares established a joint venture with Goal Investment Management to acquire a portfolio of consumer loans. The joint venture will target loans in a variety of consumer sectors, including education finance, home improvement, solar loans, and consumer installment debt. Link

Several large private credit lenders have been buying portfolios of consumer loans. Sixth Street agreed to purchase up to $4 billion in consumer loans from Affirm Holdings, while Blue Owl arranged forward flow agreements to buy up to $5 billion in personal loans from SoFi Technologies and another $2.4 billion in consumer loans from Pagaya.

• Mubadala and Barings Enter into a $500 Million Global Real Estate Debt Partnership. The new partnership will focus on investing in senior and subordinated real estate loans across real estate asset classes. Link

• Guggenheim closed a $250m private debt vehicle backed by LGT Capital Partners. Link

The Evolution of Private Credit in 2026

Marc Rowan at Apollo talked about the evolution of private markets at the Goldman Sachs conference last year. If you missed it, I’ve summarised it on the pyramid below.

Institutional capital has been the main source of capital for the last 40 years. As we’ve seen in 2025, this is rapidly changing. Many of the changes and shifts echo the evolution of other investment markets.

The key in 2026 is to begin to adapt to these changes in market structure. I expect to cover many of these changes, and our thinking will collectively evolve.

Below are four shifts already underway in 2026.

Evergreen funds proliferate as allocators seek perpetual funds

Assets in evergreen private debt funds have surged in recent years.

With Intelligence tracked over 40 commitments to evergreen funds from institutional allocators, totaling over $3 billion. The 10 largest mandates accounted for $1.9 billion.

The five largest listed private markets fund managers – Apollo, Ares, Blackstone, Carlyle and KKR – now manage a combined $1.5 trillion in perpetual capital: around 40% of their combined AuM. If the CAGR seen since 2021 continues, these firms will manage almost $5 trillion in permanent capital by the end of the decade.

• 👉 [Learn more here]

UK LTAFs gain momentum as DC pensions target private markets

The LTAF is a UK-regulated vehicle for long-term assets. The UK regulator approved this framework in 2023 to encourage UK Defined Contributions pensions to invest into private market assets.

There are now more than 25 Long-Term Asset Funds (LTAFs) on the market.

BlackRock is the largest private credit manager with an LTAF, with many managers, including Ares, Apollo, and Blackstone, yet to launch.

• 👉 [Learn more here]

ELTIF 2.0 leads to a surge in new approvals

The world’s largest asset managers increasingly see the private wealth market as the key driver of their future AuM growth. KKR, for example, plans to raise as much as 50% of its capital from high-net-worth clients.

If ’40 Act funds continue to attract capital at the rates seen since 2022, these funds will surpass $1 trillion in combined AuM by 2028, with nontraded BDCs alone set to reach this milestone by 2030.

Across the Atlantic, the implementation of the “ELTIF 2.0” regime – which broadened the list of eligible assets for European Long Term Investment Funds (ELTIFs) – has led to a surge in new approvals for private credit ELTIFs. European semi-liquid funds now manage over €20 billion. While lagging the US by some distance, this will increase in 2026.

• 👉 [Learn more here]

The Bifurcation of Retail

The rise of the individual investor is accelerating the market bifurcation. The largest asset managers, namely those who have expanded, acquired, or partnered to offer a range of private market investment options, are best positioned to capture the flag in the race for retail capital. These managers will amass the lion’s share of aggregate investor capital. As a consequence, their role in a private investment portfolio will likely change as they manage multiples more capital than the rest of the market. Institutional investors and sophisticated families will need to rethink the megas’ role in portfolios.

• 👉 [Learn more here]

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💰Fundraising News

Direct Lending

Monroe Capital, a Chicago-based private credit manager, announced a final close of $6.1 billion for its 2025 Monroe Capital Private Credit Fund V. The fund will focus on providing senior secured loans to sponsored and non-sponsored, lower middle-market U.S. companies with approximately $35 million or less in EBITDA.​ More here

Macquarie Asset Management is raising a $1 billion US direct lending fund. The Australian firm held a first close in November and is targeting a second close of $400 million to $500 million in mid-2026. The fund will primarily extend senior secured loans to private equity-backed companies in the US, but can allocate to Europe, the UK, and Australia. It will focus on companies with $25 million to $75 million in EBITDA. More here

Opportunities

Benefit Street Partners raised $10 billion for its BSP Real Estate Opportunistic Debt Fund II. The fund lends senior and junior commercial real estate debt investments across major U.S. markets, with a particular emphasis on the multifamily sector. More here

KKR has closed its second Asia-focused private credit fund at $2.5 billion. The Asia Credit Opportunities Fund II focuses on investing in credit opportunities across Asia. The fund is reportedly targeting returns in the low to mid-teens. KKR has been expanding its private credit footprint in Asia, including hiring its first Japan-based credit specialist last year and completing transactions in Australia and India. More here

RRJ Capital, a Singapore-based private equity manager, has completed a first close of $1.1 billion for its first private credit fund. The RRJ Structured Hybrid Opportunity Fund targets a net internal rate of return of about 16%. Founded in 2011 by former Goldman Sachs banker Richard Ong, RRJ plans to deploy capital across Southeast Asia, Australia, Hong Kong, and India, completing about six deals per year. More here

ABL

Davidson Kempner, a New York-based manager, announced a final close of $1.1 billion for its second asset-backed private credit fund, Income Fund II. The Fund invests across structured residential, corporate, specialty finance, and hard asset-backed loans. The fund has a global mandate and invests using teams in the U.S., Europe, and Asia. More here

Impact

Creation Investments Capital, a Chicago-based impact investor, announced a final close of $46 million for its Impact Credit Fund II. The fund lends senior, secured loans to investment-grade rated institutions that are exclusively focused on underserved populations in emerging markets, with a current geographic emphasis on India. These portfolio companies provide responsible access to credit for micro and small businesses, affordable housing, electric vehicles, and smallholder farms and agriculture in peri-urban and rural India. More here

This newsletter is for educational and entertainment purposes only. It should not be taken as investment advice.

📊 2025 Fundraising Recap

With 2025 behind us, here are my top insights for the year so far. This recap isn’t exhaustive, but it’s enough to keep you ahead of 99% of your peers.

Key stats 📈

• Number of fundraising announcements covered: 255 (Up 14% YoY)

• Amount raised: $384 billion (Up 4% YoY)

• Number of fund managers covered: 208 (Up 19% YoY)

• Number of Countries where funds were based: 24 (Unchanged YoY)

Private Credit’s Mixed 2025 Fundraising

• Private credit funds raised $384 billion in 2025, a slight increase compared to 2024.

• Last year’s growth was largely driven by a strong Q1 with 33 funds raising more than $1 billion and two funds raising more than $15 billion (See below for the largest funds).

• Q2 and Q4 were notably weak.

Europe is the Key to Growth 🌎

• Fundraising in Europe and the UK was the standout for 2025, growing nearly 40% YoY.

• The largest managers all got behind this trend:

  • See Why Apollo Thinks Europe is the Key to Private Credit’s Growth

  • Building a Case for Non-Sponsored Mid-Market Lending in Europe

  • And Why Overlooking Europe is a Mistake

• 🇺🇸 North American fundraising declined YoY. The decline was nearly entirely driven by the weak Direct Lending fundraising, which was less than half of 2024’s number.

• See Marblegate’s Whitepaper on the US Middle Market (Link).

• European funds continue to benefit from tailwinds, with the median fund nearly 2x the size compared to 2023.

• See Brookfield’s and Apollo’s comments on Europe.

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📕Nick’s Top Articles for Q4

1. Apollo: Nobody knows what “Private Credit” means.

2. Inside Q3 2025: What the Biggest Alternative Managers Are Talking About

3. 3 Reasons Ares’ Latest In the Gaps Is Required Reading for Your Credit Team

4. Howard Marks on Cockroaches in the Coal Mine

5. Inside Q3’s Tight Spreads and the Flight to Europe

A Shift at the Edges: Direct Lending + Opportunity Still Dominated

• Direct Lending’s YoY fundraising decline is well-documented.

• What was unexpected was the fall in fundraising from opportunity funds. This was predominantly driven by the fact that most of the large managers raised large opportunity funds in 2024. The number of opportunity funds raised in 2025 remained unchanged YoY, but these were on average 20% smaller.

• The one outlier was Oaktree, which closed its $16 billion Opportunity Fund in February.

• 2025’s growth was driven by ABL, Real Estate, and NAV financing.

• The number of ABL funds in the market grew 3x YoY.

• Real estate’s comeback is expected to continue into 2026, with Blackstone’s Real Estate V being the notable outlier.

The Five Largest Funds Raised a Fifth of the Capital…

1. Oak Hill’s $17.7 billion Senior Private Lending Fund.

2. Ares’s $17.6 billion Capital Europe VI

3. Oaktree $16 billion Opportunities Fund XII

4. CVC $12.2 billion European Direct Lending fund IV

5. Apollo $8.5 billion Accord+ strategy.

The $10B Club is Getting Smaller

• Large funds (>$1 billion) continue to raise the bulk of capital.

• Only four funds raised more than $10 billion, half the number raised in 2024.

• The average fund size also declined 25% YoY to $1.7 billion.

Fundraising Is Dominated by Established Managers

• New managers accounted for less than 2% of all fundraising, the lowest on record.

This newsletter is for educational or entertainment purposes only. It should not be taken as investment advice.

This isn’t my usual newsletter.

This week, I want to write about something bigger than private credit.

If you are open to that, read on.

If you’re here exclusively for deals, fundraising, and partnership updates, I’ll be back next week.

Connecting fund performance to philanthropy

I started this newsletter three years ago to learn from great credit investors. Along the way, I’ve had the privilege of speaking with a number of them.

A conversation with Joel Holsinger (Co-head of Ares Alternative Credit) a few weeks ago raised a different question:

Can we be more than great investors?

Joel grew up with a nurse for a mum and a pastor for a dad. Giving back was normal. Years later, he joined the board of PATH, a global health NGO.

On his first trip with PATH in 2018, he visited the slums of Mumbai to see a tuberculosis programme in action.

He came home with one thought: “I need to be doing more.”

Not long after, Joel walked into Ares CEO Mike Arougheti’s office with a simple proposal:

“I suggest we implement a charitable tie-in to a new fund. Let’s commit a slice of the promote (carry / performance fees) to charitable organizations.”

At that time, the ask was painless, “a percentage of zero.” There was no fund yet. No AUM. No carry.

As of September 2025, around $19 billion of AUM sits in Ares Alternative Credit vehicles with that pledge attached, and they have already accrued over $40 million for charity.

That experience is what eventually led Joel and the Ares team to help launch Promote Giving.

From casual generosity to structural giving

Most of us give to charity in the usual way:

Someone runs a marathon, we click a JustGiving link.

A colleague hosts a charity dinner, we buy a table.

At year-end, we donate to a couple of household names and move on. It’s generosity. But it’s not deliberate.

Promote Giving is an attempt to change that.

What Promote Giving Is (and Isn’t)

Promote Giving isn’t a charity. It’s a collective and community made up of nine founding signatories. The pledge is simple:

Donate the equivalent of at least 5% of performance fees from a fund (or family of funds) to charities focused on healthcare, education, or human well-being.

No constraints on investment decisions. No trade-offs for LP returns. Just a small, pre-committed slice of promote that is structurally routed to philanthropy.

So far, ~$35B+ in AUM has pledged to participate.

Each signatory:

• Sets up its own giving infrastructure.

• Chooses its own charities that align with its firm.

• Decides whether giving is centralized or employee-directed.

Promote Giving helps:

• Connect firms that share similar charitable themes.

• Pull in external expertise; they’ve connected people with GiveWell, Effective Altruism, and other strategic giving groups.

• Provide guidance on where to start.

“What about my carry?”

“If you carve out 5–10%, doesn’t that mean there’s less carry to go around?”

Promote Giving isn’t meant to undermine your ability to recruit and retain by forcing a tax on compensation. The goal is that people participate because they believe in it, not because they’re coerced.

Joel described the response inside the team as a rule of thirds:

• One third: Think: “Just pay me my bonus.” They’re not hostile, but they’re not emotionally invested.

• One third: Genuinely like that the firm does this; it’s part of the culture.

• The final third: “It’s the air they breathe.” It’s one of the reasons they will never leave.

You don’t need 100% evangelists. You just need enough people in that last third that the culture shifts.

And importantly, you don’t have to start with your whole platform. Start with one vehicle. You can grow from there.

Compounding purpose

Promote Giving gives teams a dual mandate:

1. Deliver the highest possible returns to pensioners, retirees, and insurance policyholders.

2. Know that a slice of the upside from doing that well is going to save lives, educate kids, and support communities.

It changes internal conversations, instead of “Look at my bonus.”

You can say:

“If we achieve our base case on this deal, $600,000 of promote will go to charity.”

Or:

“We approved six new grants this year—one is funding a surgical center in Zimbabwe.”

That’s compounding purpose. And that’s what Promote Giving is really about.

“We wouldn’t know where to start.”

Promote Giving has spoken with 50+ organisations and groups that are setting up foundations or structured giving for the first time.

And the investor mindset is an advantage. We already ask:

“Where will each dollar have the most impact?”

“How do we measure outcomes?”

The key is to start and to involve the whole organization. Make it cultural, not just an executive decision. Once you start, you’ll almost certainly do more.

The 13-year-old and the 95-year-old

One of the founding signatories, Jeremy Coller, Managing Partner of Coller Capital, has a simple test:

• Would your 13-year-old self be proud of you?

• Would your 95-year-old self be proud of what you did?

Joel Holsinger has a similar view: when you’re 95, there are only three things that really matter:

• Your close friends and family.

• Your experience, not your goods. The trip, not the car.

• And did you give back? Did you make the world a better place?

Promote Giving is a way of hard-coding that third point into the business model we already live inside.

A Christmas ask

So here’s a very specific Christmas request:

If you’re a GP/manager of a fund

Pick an upcoming vehicle or existing vehicles and ask: “Are we willing to pledge the equivalent of at least 5% of the promote from our fund(s) to charity?”

If you’re an investment professional

Bring this into your next offsite or partner meeting and ask: “If we were starting from scratch, would we design the firm to give like this?”

If you’re an LP

Add one line to your DDQs: “Do you operate a structured, manager-funded giving model (e.g. Promote Giving)? If not, why not?”

If you want background materials or examples, email info@promotegiving.org or hit “Take the Pledge” on their site. The team runs regular Zooms with interested managers.

Thanks again, and see you all in the New Year

Nick.

This week’s a wrap-up of 2025. Unfortunately, some managers took the “wrap” theme a little too literally, so I’ve posted their music videos for your amusement.

If we don’t speak before the New Year, Happy Holidays, and thank you for subscribing.

I hope you’ve enjoyed this year of Credit Crunch as much as I did.

Looking forward to 2026.

Nick

📕 The Holiday Videos are Back

Blackstone’s Holiday Video

Apollo’s Holiday Video

😐 The Crowd’s Narrative for 2025

• Spreads are tight (don’t worry, we still have a premium to liquid credit)

• Defaults are within historical norms (Can we stop treating one messy credit as proof the whole market’s broken?)

• M&A is coming back (We’re told M&A helps spreads. We’re choosing to be emotionally available to that idea.)

• We’re partnering with banks, insurers, and traditional asset managers more than ever (The good news: we have capital. The bad news: everyone else has it too.)

• Commercial Real Estate lending is back (We’re even financing the banks so they can go back to the office.)

• ABF is 🚀 (New entrants are underwriting vibes, particularly in consumer and factoring.)

• AI is 🚀 (We hope we won’t be holding the keys if there’s any overbuild. 🤞)

• We’re growing in Europe (And possibly Asia, depending on how many flights we take and how many deals survive IC.)

📈 More Than the Talking Points

US M.A is Showing Signs of a Revival

👉 [Read Oaktree’s December letter here]

Deepening Dispersion

BlackRock sees widening dispersion within private credit, particularly in the lower mid-market.

They showed the same graph last year.

👉 [Read BlackRock’s Outlook here]

HPS has ‘independently’ arrived at the same opinion

We see the most pressure within smaller companies, which we believe have a limited margin for error navigating macroeconomic shocks. Companies with less than $25 million of EBITDA are experiencing meaningfully higher covenant defaults, compared to companies at the upper end of the market, reinforcing our view that experienced private credit managers with scale that invest in larger companies are best positioned during challenging macroeconomic environments.

👉 [Read HPS’s Thoughts on Private Credit]

BDCs Underperformed in 2025

The underperformance got more airtime than it deserved.

👉 [Read Raymond James’ December Update Here]

Moderate LTVs Still Provide Meaningful Protection

During the 2008-2009 GFC, the Cambridge Associates Private Equity Index experienced a 28% peak-to-trough valuation decline.

Blue Owl highlights that its loans are generally senior with a weighted average loan-to-value of 39%.

Borrowers would therefore need to lose more than 60% of their value before Blue Owl experiences potential principal loss.

👉 [Read Blue Owl’s Update Here]

Private Credit Still Matches the Opportunity

Private credit dry powder relative to private equity dry powder has remained almost unchanged over the last ten years

Underscoring the thesis that the market’s scale remains proportionate to its opportunity set.

👉 [Read HPS’s Thoughts on Private Credit]

Banks Are Powering Private Markets

Loans to non-deposit financial institutions have increased 3x since 2020.

👉 [Read Wellington’s Outlook]

New Entrants Need Not Apply

Five years ago, the top 20 managers raised 35% of the capital in the market; in 2024, the top 20 private credit managers raised more than 65% of the capital.

Fundraising data shows a similar trend, with new entrants accounting for just 2% of the total fundraising share in 2024.4

👉 [Read Barings Insights]

And the last one, because what’s a summary without mentioning AI.

👉 [Read Partner’s Group Outlook here]

💰Fundraising News

• Deerpath Capital, a U.S.-based lender, raised $3.5 billion for its Deerpath Fund VII fund. The fund lends to sponsored U.S. lower middle market companies.Since its inception in 2007, Deerpath has invested more than $14 billion across over 1,200 transactions. More here

• Colesco Capital, a Netherlands-based private credit specialist, has agreed with Polestar Capital and its investors to take over management of the Polestar Capital Circular Debt Fund. The fund focuses on financing the transition towards a more circular economy. The entire investment team will transfer to Colesco, maintaining continuity in the execution of the strategy. More here

• HSBC Asset Management has launched a new fund for retail investors in Hong Kong. The fund will invest in both public and private credit globally and will offer investors monthly payouts. It will focus on short-duration institutional-grade private credit and asset-backed opportunities. More here

This newsletter is for educational and entertainment purposes only. It should not be taken as investment advice.

There’s a lot of content this week. If you’re short of time, I’d recommend the Apollo slides (Link) + the Bonus Material (Link).

📕 Reads of the Week

Market Updates

• Private equity dry powder recedes from all-time highs amid slow fundraising

  • 👉 [Learn more here]

• KKR: Focus Under the Hood, Not on the Headlines. Link

• Alternative Credit Council’s Financing the Economy 2025. Link

Manager Updates

• 🎧 KKR is looking to Europe and Japan for yield as US debt spreads grind tighter. Link

• BCRED redemptions rise 3x vs 2024. Link

• Apollo is restructuring its hybrid capital team out of its private equity division, underlining the firm’s strategic pivot toward private credit. Link

Partnership Updates

If you want evidence behind Marc Rowan’s comments on how private credit is evolving, here are three examples from this week alone.

• Retail & Wealth: Invesco and LGT Capital Partners announced a partnership to expand access to private markets for U.S. wealth and retirement investors. More here

• Insurance: SAF Group, the Canadian private credit manager, has partnered with American Life & Security Corp to launch a ~$1.5 billion reinsurance vehicle. More here

• Traditional Asset Management: OHA announced that its partnership with T. Rowe Price contributed meaningfully towards its $17.7 billion fundraise Senior Private Lending Fund. More here

📚 Apollo: Nobody knows what “Private Credit” means.

We are living through the ‘mediazation’ of financial markets, and Apollo is frustrated because no one knows what private credit actually means.

In an effort to clear things up, Apollo has put together a 125-page deck defining “private credit.”

The full deck is worth sharing, but you can see some of my highlights below.

👉 [See Apollo’s deck here]

Investors are Selling High-Priced Equity and Moving into Levered Lending: Lower Risk, Similar Returns

Let’s start from the investor's point of view.

If you have an opportunity to move your money out of a high-priced equity market that is concentrated around seven stocks and earn roughly long-term equity returns for first lien risk, that is a de-risking trade for investors.

And when people say, well, there’s risk in private credit, of course, there’s risk in private credit, direct lending. We’re lending to BB companies.

Some number of these companies will default, but it’s a fraction of the risk of equity, and it’s a fraction of the risk of public high yield.

People are not moving their money out of their Treasury portfolio and into direct lending. They’re moving it out of equity.

And so, what the market broadly does not understand is that this is a de-risking trade for the market. This de-risking trade is going to continue, particularly around equity volatility, so long as private credit returns are good.

Almost Everything We are Building Today (Infrastructure, Energy, Data Centers, Manufacturing) is Long-Term

The demand for capital from this global industrial renaissance is just off the charts.

If Microsoft wants to borrow, the cheapest place for Microsoft to borrow is on its balance sheet, drive-by deals, low spreads, any amount, any day.

That’s not what’s happening now.

When you’re doing data center deals, or you’re doing power deals, or you’re building a new defense plant, manufacturing, or infrastructure, these are project finance deals.

Project finance does not generally go to the bond market. When you’re talking about project finance in the broadest sense, if it’s short-dated, you’re going to the banking system. The banking system is by far the most efficient place to execute.

If you want something long-dated, you’re generally coming to the private market. And what’s happened is the scale of what we’re doing is just off the charts.

Relative to the size of the private market, we’re seeing this massive need for capital that is mostly investment grade, that is mostly secured, that is mostly project-focused. This capital ends up as a credit derivative of investment-grade balance sheets.

Leading Corporates Choose Private Investment Grade Credit

Why Do Investors Choose Private Investment Grade Over Public Investment Grade?

Why Do Issuers Choose Private Investment Grade Over Public Investment Grade?

👉 [See Apollo’s deck here]

*** BONUS MATERIAL ***

Marc Rowan expanded on this deck at the Goldman Sachs Financial Services Conference.

Two of his comments stood out to me.

👉 [See the full transcript here ]

Lending to Data Centers: The Principal vs. Agent Problem

Data centers are attractive, but as a credit investor, you should focus on getting leased and repaid. Not on guessing what the world looks like at lease renewal.

There’s a difference between a principal’s mindset and an agent’s mindset.

If you are an agent, you are originating anything to do with AI and data today. You have 100% confidence that you can distribute the risk.

If you have a principal’s mindset and you’re going to own the asset for a long period of time, you look at everything through a different lens.

So, if you now drill into the notion of AI data centers, what are we really talking about? Anywhere we go in the world for heavy users of compute, you ask them, what do they need to move faster? And the answer is always the same, more compute. When are they going to get more compute? No time soon, because there are natural limits. There are energy limits, there are regulatory limits, and there are zoning limits. (And everything else..)

What does that tell you as a credit investor? It tells me that the risk I’m prepared to take is lease-up risk. The risk I’m not prepared to take is renewal risk.

The chart of experts’ projections of energy usage in 2030 is like a child throwing darts. If the experts have no idea of energy use, much less chip use, compute, the impact of quantum, do I really want to, with my credit hat on, take renewal risk? No.

This is now the bifurcation of how you think about AI and data.

And so, let’s make sure we’re looking at this through the right lens. Credit is credit, and the best you can do is get paid back. Therefore, it is not a great place to speculate on renewal. There’s plenty to do without taking renewal risk.

Equity has the volatility of upside and the chance of losing everything. And, yes, you can lose it all, and prices are high, and I think there will be both great fortunes made and lost in the equity of data centers.

The Evolution of Private Credit

We had one buyer of private assets for almost 40 years.

1. That buyer was the alternative bucket of our institutional clients. And when something’s an alternative, you want really high rates of return. You want to watch it closely. You don’t want it to be that concentrated. And that sustained the entirety of our industry for almost 40 years.

2. Then, we got the second thing called retail and wealth, and that is now going to double the size of the market.

3. Then, we got a third thing called insurance companies. People watched what we did and understood that the ability to own certain types of private assets inside of an insurance company made sense.

4. Then, we got a fourth market, which is institutions looking at their debt and equity bucket, understanding that private no longer meant alternative, that private was just private and could be investment grade or not.

5. Then, we got a fifth market accelerated by BlackRock’s purchase of HPS and Preqin, which are traditional asset managers who are looking for the next thing because active management has not been a great market, very difficult to sustain performance in active management, and they are hoping that the blend of public and private will help produce returns that beat indices.

6. And then, I think we’re going to get a sixth market already indicated by the executive order in 401(k).

Private credit will be limited by origination.

Over the short term, fundraising is really important. Over the medium term, private credit will not be limited by capital.

Private credit will be limited by our capacity to originate risk that is worth originating.

We as an industry cannot originate enough to serve all six channels. We are heading for a world where there is more demand for quality private assets than there is supply of quality private assets.

We will have some amount of pricing power so long as we originate good risk. We will have to be very careful not to abuse that pricing power because we will want to work with people who are partners over cycles and who are easy to serve.

In the institutional market, we will have fewer clients in five years than we have today. And those clients will be larger. They will be more partner-like.

In the retail market, we will end up in a position where the big wealth firms probably don’t sell individual products. They sell blended products of multiple exposures.

👉 [See the full transcript here ]

💰Fundraising News

Direct Lending

• Oak Hill Advisors, the New York alternative manager, announced the final close of its $17.7 billion Senior Private Lending Fund. The fund will capitalize on the growing opportunity for direct lending to larger companies, focusing on first lien and unitranche loans to companies with EBITDA greater than $75 million. It is OHA’s largest flagship fundraise in our history. More here

• TPG raised $6.2 billion for its third Credit Solutions Fund. The strategy will lend to both public and private companies, targeting high single-digit to low double-digit returns. The fund will lend against specific assets, business carve-outs, and unencumbered collateral. More here

Infrastructure

• Eiffel Investment Group, a Paris-based asset manager, announced a final close of $1.4 billion for its third vintage of the energy transition infrastructure debt strategy, Eiffel Energy Transition III. The fund provides short-term debt to green energy assets. The strategy has backed more than 5,000 green energy production assets (solar, wind, biomass, biogas, hydroelectricity, cogeneration, and energy efficiency) representing a carbon-free electricity production capacity of more than 15 GW. More here

APAC

• SeaTown, the Singaporean manager backed by Temasek, raised $900 million for its third private credit fund. The fund lends to corporates in the Asia-Pacific region and targets mid-teens returns. SeaTown is targeting a fund size similar to its previous private credit vintages, which closed on $1.2 and $1.3 billion. More here

• SC Lowy, the South East Asian manager, raised $417 million for its Strategic Investments IV fund. The manager focuses on primary direct lending to companies and projects with limited access to traditional financing. More here

• Granite Asia, a Singapore-based investment manager, announced a first close of $350 million for its inaugural private credit vehicle, Libra Hybrid Capital Fund. The fund lends senior secured loans to businesses across Asia-Pacific. Granite Asia is targeting a final close of $500 million. More here

This newsletter is for educational and entertainment purposes only. It should not be taken as investment advice.